If you’ve sold real estate—whether a home, commercial building, or vacant land—you may receive Form 1099-S from a closing agent, escrow company, or mortgage lender. This IRS form reports the gross proceeds from real estate sales and helps determine if capital gains taxes apply. Filing it correctly is essential to avoid penalties and ensure IRS compliance.
Whether you’re a seller, buyer, or involved in closing transactions, understanding your responsibilities is key. That’s where our tax services come in. We can help you stay compliant, determine if your transaction qualifies for exemptions, and ensure all documentation is submitted accurately and on time.
Form 1099-S plays a critical role in real estate tax reporting. Below, we break down who must file, what transactions require reporting, and what exemptions may apply.
What is a 1099-S Form?
Form 1099-S (Proceeds from Real Estate Transactions) is an IRS tax form used to report real estate sales. The IRS requires this form to track capital gains and ensure that sellers properly report the proceeds from their property transactions.
What Transactions Require a 1099-S Form?
A 1099-S form must be issued for real estate transactions where ownership is transferred in exchange for money, property, services, or debt relief. The types of reportable real estate transactions include:
- Vacant or developed land, including air space rights.
- Permanent structures, such as residential, commercial, or industrial buildings.
- Condominium units, along with fixtures, common areas, and associated land.
- Stock in a cooperative housing corporation, as defined by IRS Section 216.
- Non-contingent interests in standing timber.
Who Issues Form 1099-S?
The responsibility for filing Form 1099-S depends on who is involved in the transaction and whether a Closing Disclosure is used. The following rules apply:
1. If a Closing Disclosure Is Used
- The person listed as the settlement agent on the Closing Disclosure is responsible for filing Form 1099-S.
2. If No Closing Disclosure Is Used (or Multiple Are Used)
If no Closing Disclosure exists or multiple disclosures apply, the responsibility falls in the following order:
- The transferee’s attorney (if present at closing or involved in document preparation).
- The transferor’s attorney (if involved in document preparation or fund transfer).
- The title or escrow company that plays the most significant role in disbursing the proceeds.
- If multiple attorneys qualify, the one with the most significant involvement is responsible for filing.
3. If No One Is Responsible Under the Above Rules, Filing Responsibility Falls in This Order:
- The mortgage lender (if a new loan is secured by the real estate).
- The transferor’s broker (the broker contracted with the seller and compensated for the transaction).
- The transferee’s broker (the broker who prepared or presented the purchase offer).
- The transferee (buyer), if none of the above applies.
4. Designation Agreement Option
- A written designation agreement may be created at or before closing to assign responsibility for filing Form 1099-S.
This agreement must:
- Identify the responsible filer by name and address.
- Be signed and dated by all parties in the agreement.
- Include the property details and transferor/transferee information.
- Be retained for four years by each signing party.
Only one Form 1099-S should be filed per transferor to ensure IRS compliance.
Exemptions from Filing Form 1099-S
Not all real estate transactions require a Form 1099-S. The following exceptions apply, but filers may still choose to report them voluntarily:
- Primary residence sales – If the seller certifies the home was their principal residence and the entire gain is excludable ($250,000 for single filers or $500,000 for married couples).
- Sales by exempt entities – No reporting is needed if the seller is a corporation, government unit, or exempt volume transferor (sold 25+ properties in the past two years).
- Non-sale transfers – Includes gifts, inheritances, refinancing, and debt settlements (e.g., foreclosure, transfer in lieu of foreclosure).
- Small transactions – Sales under $600, including payments in cash, property, or services.
- Certain property types – No reporting for natural resource rights, burial plots, or mobile homes not affixed to a foundation.
Instructions for Form 1099-S: Key Sections Explained
Accurately completing Form 1099-S is essential for reporting real estate transactions. Below is a breakdown of the key sections of the form.
- Box 1 – Date of Closing
Reports the date the property sale was finalized. This is the official closing date when the ownership transfer occurs.
- Box 2 – Gross Proceeds
Shows the total amount received from the property sale, including:
- Cash payments
- Notes payable to the seller
- Any assumed mortgages or loans
This box does not include the value of any services or non-cash property received (see Box 4 for non-cash compensation).
- Box 3 – Address or Legal Description
Provides the physical address of the property sold.
- Box 4 – Non-Cash Consideration
If checked, this box indicates the seller received non-monetary compensation, such as:
- Other property in exchange for the sale
- Services rendered as part of the payment
The value of such non-cash items is not included in Box 2.
- Box 5 – Foreign Person Indicator
If checked, the seller is classified as a foreign person under IRS regulations, meaning they are a:
- Nonresident alien
- Foreign estate
- Foreign partnership
- Foreign trust
- Box 6 – Buyer’s Share of Real Estate Tax
Reports the portion of real estate taxes assigned to the buyer at closing. If the seller already paid the full tax amount, they must subtract this value when determining their deductible real estate tax.
If the seller previously deducted this tax in a prior year, they must generally report this amount as taxable income on Schedule 1 (Form 1040).
How to File a 1099-S Form
To file Form 1099-S, follow these steps:
- Obtain the Form – You can order official 1099-S forms from the IRS website or an authorized supplier. The IRS does not accept printed copies from online templates.
- Complete the Form – Fill in the property details, proceeds, and seller information.
- File with the IRS – If submitting 250 or more forms, you must file electronically; otherwise, paper filing is allowed.
- Send a Copy to the Seller – The seller must receive Copy B of the form by January 31 of the following year.
- Submit Form 1096 – If filing by paper, include Form 1096, which summarizes the 1099-S filings.
Penalties for Failing to File Form 1099-S
The IRS imposes penalties for failing to file Form 1099-S on time. These fines depend on when the form is submitted and how many transactions were not reported. Additionally, penalties accrue interest and are separate from any fines related to unpaid taxes.
Key factors that determine penalties include:
- Filing delays – The longer the delay, the higher the fine.
- Number of unfiled transactions – More missing forms result in larger penalties.
- Intentional non-compliance – Deliberate failure to file can lead to significantly higher fines.
Understand Your 1099-S Filing Obligations
Form 1099-S is a crucial part of real estate tax reporting, and errors or delays in filing can lead to IRS penalties. Whether you’re a seller, buyer, or closing agent, knowing who is responsible for filing and which transactions require reporting helps you avoid unnecessary issues.Effective tax planning ensures that you stay compliant and minimize risk. If you have questions about your filing obligations or need help navigating real estate tax forms, our team is here to assist. You can also explore our Guide to Form 1099 for more insight into related reporting requirements.