How does the IRS know what I paid for a property? - Posted by Mike


#1

Posted by bronchick on November 27, 1998 at 09:45:38:

Until they audit you, of course.


#2

How does the IRS know what I paid for a property? - Posted by Mike

Posted by Mike on November 24, 1998 at 19:05:39:

Hi.

Tax time is right around the corner and this will be the first year that I will have to report earnings on real estate gains. I was wondering how a purchase and sale of real estate gets reported to the IRS. Do title companies simply mail a 1099 at tax time? If so, what happens if a sale takes place without the use of a title company?

Thanks for the great board and info.

Mike


#3

Re: How does the IRS know - Not so fast - Posted by Bob G.

Posted by Bob G. on November 25, 1998 at 14:28:45:

Two items.

  1. I was told that if the seller is selling a personal residence, and the price is under $250K ($500k joint ownership), due to the new tax law exempting those amounts of gain, that no 1099 is sent to the IRS.

  2. Closing agents are not required to 1099 corporations. Thus, if the seller is a corp., there is no 1099.


#4

Re: How does the IRS know what I paid - Posted by Bronchick

Posted by Bronchick on November 25, 1998 at 13:03:11:

When you sell a property (other than your personal residence), the closing agent (title company or attorney) sends an IRS form 1099s to the Internal Revenue in January of the following year. The form only reports the gross amount of the sale. It is up to you to report your cost/basis, expenses, etc, and thus net profit. If there was no closing agent (or it was your personal residence), nothing is reported to the IRS.


#5

Re: How does the IRS know? - Posted by raelynn mitchell

Posted by raelynn mitchell on November 25, 1998 at 12:10:35:

Found a very interesting book (read - I can’t put it down) about “How the IRS knows” certain things, written by a CPA with many years experience. It’s called WHAT THE IRS DOESN’T WANT YOU TO KNOW, by Martin Kaplan, CPA and Naomi Weiss. (This is a rarity, as I DO NOT like reading tax books.)

The reason I couldn’t put it down is his writing style. This CPA tries to not only explain the hows, but also the mentality of the IRS agents as they pursue different things, and how each department within the IRS pursues things differently than others.

And the really good thing about this book was, I found it at Bargain Books, making it only $5.00. It was revised for 1998 (fourth ed.), and a true eye opener. He also goes into what the IRS does well and what they have trouble doing well, all the way up to the loopholes in their departmental thought processes.

Could be the best $5 I ever spent.

raelynn


#6

Re: How does the IRS know ? - Posted by Kristin Stallworth

Posted by Kristin Stallworth on November 25, 1998 at 09:43:39:

Mike,
Each time you sell a property, your title company will send a 1099 to the IRS with the amount you received at closing. If it was a private closing, it’s up to you to document your net profit at tax time. If you are concerned in future years about getting taxed too heavily, you might want to look into a 1031 exchange to delay your tax responsibilities.Just a thought. Good Luck!


#7

Re: How does the IRS know - Not so fast - Posted by Redline

Posted by Redline on November 25, 1998 at 15:02:09:

“1. I was told that if the seller is selling a personal residence, and the price is under $250K ($500k joint ownership), due to the new tax law exempting those amounts of gain, that no 1099 is sent to the IRS.”

This is hard to imagine because the IRS exemption is conditional and not across-the-board.

RL


#8

Is this for the Seller ONLY? - Posted by David(Ca)

Posted by David(Ca) on November 25, 1998 at 19:40:52:

If so, the IRS would have no first hand knowledge about your cost, other than what you tell them?


#9

What about MH’s? - Posted by John (KS)

Posted by John (KS) on November 25, 1998 at 15:58:57:

In doing Lonnie deal’s, my name has never gone on the title besides in the lein holder’s spot. I was the owner (for only a few days in most cases) and I am selling it on contract. How do I handle this on my taxes? I am generating income, but the IRS doesn’t know that. The people that buy from me aren’t going to put my name anywhere on their taxes that they are giving me money. Where will they get me?

I am not planning on tax evasion, my mother-in-law is a manager for H&R Block and she wouldn’t let me try to evade anyway. Just want to know my rights.


#10

Re: How does the IRS know - Not so fast - Posted by Bronchick

Posted by Bronchick on November 25, 1998 at 17:04:18:

Actually, the closing agent requires that the seller sign an affidavit that the GAIN is less than $250k and it is not reported. This is in fact true - I own a title company!