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Naveen Mohan from New York

1099 issued on sale of primary residence

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Normally upto $ 250,000 gain on the sale of primary residence is exempt and not even reported in a tax return. I have a client whose 83 years mother sold a trailer in Kentucky for $ 80,000 but the lawyer handling the transaction has issued a 1099 for this sale.. Normally she is exempt from filing a tax return because all she has is social security income.

How do I handle it. Should I file a tax return for her. If so show do I report this on schedule D?

Thanks for your help.

 

Naveen Mohan 

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38 minutes ago, Abby Normal said:

Aren't trailers considered personal property? Did she own the land?

Even if a trailer is personal property, it still is a residence. Options:

 

1. What I have always done if I am filing a return anyway is to report the sale and claim the exclusion in order to avoid a potential IRS letter and the panic call from the client.

2. Don't report and deal with the IRS letter when and if it happens. Just explain the choices to your client and make an informed decision together. 🤔

 

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83 year old mother - file a return.

Enter the 1099 as a sale on your schedule D and use a cost basis of the amount of the sale up to the exclusion portion.

 

 

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50 minutes ago, Roberts said:

83 year old mother - file a return.

Enter the 1099 as a sale on your schedule D and use a cost basis of the amount of the sale up to the exclusion portion.

 

 

 

No, it goes on 8949 and there are two codes you'll need: one for expense of sale (E) and one for the exclusion amount of gain (H). And they must be entered alphabetically. If it's not a gain then just use the other code (O).

https://www.irs.gov/instructions/i8949#idm140253094361072

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What @Abby Normal said.  Report on F8949; use cost basis.  Any remaining "gain" is then excluded under Section 121 for primary residence.  Remember that includes time spent in a nursing home etc; those are considered temporary/disregarded absences for the sake of the exclusion.  

If you don't file the return, your client WILL get a letter demanding $20K in tax plus penalties and interest.  In her 80's she'll have forgotten any conversation when she gets the letter.  Prevent the stroke and file the return!

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If she's lived in and owned the home for 2 of the past 5 years, you don't have to bother her with cost basis info.  Well, you could ask her if she remembers how much she paid for it and give the HUD a glance for sale expenses, but you don't have to make her frantic looking for original sale docs, improvements, etc.  Even if you put the whole $80k in as the sales price and zero basis, you could still exclude the whole gain under Sect 121.  Because she got the 1099S, however, you do have to report it.

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11 hours ago, SaraEA said:

you don't have to make her frantic looking for original sale docs

County land records (or town) generally have last sale data.  Looked it up for one elderly client at one point and sure 'nough they had a listing for the 1954-ish purchase of his house, with price paid.  In his case, we did need to exclude every penny.  I also totaled up his handwritten contemporaneous cost list from re-doing the kitchen back when I was still small enough to walk under the kitchen table without hitting my head.  It was in much-faded but still legible pencil, and he had all the receipts, too, bless him.  He was *such* a dear.

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3 hours ago, Catherine said:

 back when I was still small enough to walk under the kitchen table without hitting my head.

I have met you.   This is way to easy.   You are still not tall enough to hit your head when walking under the table.😍😝

Tom
Modesto, CA

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