Falls Church, VA · Member since 2014 · 2 posts · 0 votes
The program required half of the profits from the sale be paid back into the program. A check was wired to the county at closing by the settlement company. Do I add this payment to the closing costs? The 1099-S I was given at closing shows the full sales price.
CPA · NY · Member since 2023 · 891 posts · 157 votes
2y
The payment you made to the program, which required half of the profits from the sale, is typically not considered a closing cost in the traditional sense. Instead, it's often treated as a separate obligation related to the terms of the program. The 1099-S you received at closing reflects the full sales price because it's reporting the total amount received from the sale before any specific deductions or payments.
For tax purposes, you would need to consider the net proceeds from the sale. In this case, you may need to adjust the reported sales price to reflect the amount paid back to the program. The net proceeds would be the actual amount you received after deducting the payment to the program.
It's advisable to consult with a tax professional to ensure that you accurately report the sale on your tax return, taking into account any payments or obligations associated with the program. They can help you navigate the complexities of reporting real estate transactions and provide guidance on properly accounting for such payments.
Falls Church, VA · Member since 2014 · 2 posts · 0 votes
2y
Thank you very much for you quick reply. My taxes are done except for this one matter so I will forge on myself. I made the change of reducing the 1099-S to the amount I actually received at closing. My tax amount stayed the same. Do I need to attach/mail in h the request from the county showing the amount of the payment they required to explain why I reduced the amount shown on the 1099-S? Or should I wait and see if they question it?
CPA · NY · Member since 2023 · 891 posts · 157 votes
2y
When you make an adjustment to the reported amount on the 1099-S, it's generally a good practice to keep supporting documentation in case the tax authorities inquire about it. In your case, since you reduced the reported amount on the 1099-S to reflect the actual amount you received after the payment to the program, you might want to have the documentation from the county's request readily available.
While it's not mandatory to submit the documentation with your tax return, having it on hand can be helpful in case of an audit or if the IRS requests additional information. You can retain the relevant documents, such as the request from the county and any communication related to the payment, in your records.
If the tax authorities have questions about the adjustment, you can provide the documentation at that time. It's always a good idea to keep thorough records and be prepared to support any changes made to your tax return.
If you're uncertain about how to proceed or have concerns, consider consulting with a tax professional for personalized advice based on your specific situation.