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1099-s substitute statement confusion

Anonymous
Not applicable

I'm working to report a home sale by two owners (they are not related/married to each other). Their ownership stake was 50/50 and consequently the sale proceeds were split in half. Now they were given a substitute settlement statement instead of form 1099-s. On it, it lists the "sales price" in the first line as $500,000. Then the next lines are "Prorations/Adjustments", "Commissions", "HOA charges", Mischellaneous debits/credits", and "Recording/State Charges" with a monetary amount accompanying each. After all these numbers are added/subtracted from the $500,000, the final two lines of the settlement statement says this:

Proceeds to seller A: $230,000

Proceeds to seller B: $230,000

I looked at the official 1099-s instructions (https://www.irs.gov/pub/irs-pdf/f1099s.pdf) and for Box 2. Gross Proceeds it says this:

Shows the gross proceeds from a real estate transaction, generally the sales price. Gross proceeds include cash and notes payable to you, notes assumed by the transferee (buyer), and any notes paid off at settlement. Box 2 does not include the value of other property or services you received or will receive.

I am confused by whether the Gross Proceeds that needs to be reported on Form 8949 is just the sales price ($250,000 for each owner), or what each owner actually received in their bank account ($230,000). Reading the 1099-s instructions I'm leaning towards $250,000 because that is the "sales price" and includes both "notes assumed by the transferee" and "any notes paid off at settlement". If anyone can confirm this that would be great. Thanks!

 

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qbteachmt
Level 15

This is Net, not gross: "or what each owner actually received in their bank account ($230,000)."

Look at those details and think about, "If my client got the Entire amount of the sale, then had to pay off these things to be free and clear of this property" they end up with Net to Bank.

Gross is Sale price + anything that was included as if your client paid it directly.

Examples of Net increased to Gross: a refund of HOA fees paid in advance and taxes credited to your client for being paid to the date in advance of when the buyer takes over.

Examples of incurred costs that reduced Gross to Net: Commission to selling broker/agent, fees past due, taxes and HOA fees from whatever prior date to closing date that are technically owed by your seller.

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1 Reply 1
qbteachmt
Level 15

This is Net, not gross: "or what each owner actually received in their bank account ($230,000)."

Look at those details and think about, "If my client got the Entire amount of the sale, then had to pay off these things to be free and clear of this property" they end up with Net to Bank.

Gross is Sale price + anything that was included as if your client paid it directly.

Examples of Net increased to Gross: a refund of HOA fees paid in advance and taxes credited to your client for being paid to the date in advance of when the buyer takes over.

Examples of incurred costs that reduced Gross to Net: Commission to selling broker/agent, fees past due, taxes and HOA fees from whatever prior date to closing date that are technically owed by your seller.

*******************************
"Level Up" is a gaming function, not a real life function.

View solution in original post