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How to Report a Sale of Real Estate Property to the IRS

by Steve Lander

For some home sales, the reporting process is amazingly simple -- don't report anything. If you sell a house on which you have a loss or can exclude the entire capital gain, and you don't get a 1099-S form, you don't have to report it. However, when you have a gain to report, you aren't selling your primary residence or you get a 1099-S form, you'll have to file extra paperwork for the Internal Revenue Service with your tax return and potentially pay additional tax.

Calculate your home's adjusted basis by adding closing costs and the cost of all of the improvements you've made to your house while you owned it to your original purchase price. If you bought your house for $55,000, paid $1,500 in non-loan related closing costs, and spent $11,250 on remodeling your kitchen, your adjusted basis would be $67,750.

Calculate the amount realized from the sale of your house by subtracting from the selling price your commissions, closing costs and anything you spent to help the buyer get a mortgage. For instance, if you sold your house for $197,000, paid $11,820 in commission, paid $2,200 in closing costs and paid $1,850 in points for the buyer, your amount realized would be $181,130.

Calculate your gain or loss by subtracting your adjusted basis from your amount realized. In this example, the gain would be $181,130 minus $67,750, or $113,380.

Enter your name and social security number on the top of the front and back of IRS Form 8949 when you are filing your taxes for the year in which you sold your real estate. Assuming that you held your house for over a year, you'll be filling in the information in Part II. If you've held your house for less than a year, any gains are considered short-term gains and belong in Part I.

Check box "C" on Form 8949, since, if you got a form, it was the 1099-S, not the 1099-B.

Insert your home's address in column (a) of line 3 of Part II, the date you bought it in column (b) and the date you sold it in column (c). Your selling price (not your amount realized) goes in column (d) and your adjusted basis goes in column (e). Write "EH" in column (f) -- this lets the IRS know that you're claiming a capital-gain exclusion and deducting selling expenses. In column (g) enter the sum of your selling expenses and your capital gain exclusion, which, at the time of publication, is $250,000 if you're single or $500,000 if you're married. Subtract column (e) and (g) from column (d) to come up with your gain or loss. If you have a loss because your exclusion and your selling expenses are more than your gain, reduce your exclusion until your loss is equal to zero dollars. In this example of the $197,000 house sale, you would enter $129,250 in column (g). If you have a loss even before the exclusion, write L in column (f) and write your actual loss as a positive number in column (g). You won't be able to write the loss off.

Total up all of your gains and losses, if any, in Part II of Form 8949 and enter the sum at the bottom of the page.

Carry your gain or loss from Form 8949 to line 9 or, if your property ownership was less than one year, line 2, on Schedule D. From this point, you've reported the sale of your house, and you'll need to finish filling in Schedule D with the rest of your capital gains and loss information.

About the Author

Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.

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