A 1031 exchange involves a lot of paperwork. There are two transactions in the exchange process. One is the closing of the relinquished property, and the other is the acquisition of the replacement property. The exchanger is basically selling and buying a property.
Luckily for the exchanger, a number of people are involved in the process that ensures all of the correct paperwork is processed. One document that is filed when a property is sold is called Form 1099-S. It records the proceeds from the sale. But is a 1099-S required in an exchange?
What Is Form 1099-S?
Form 1099-S is titled Proceeds From Real Estate Transactions.
It is a tax document filed as part of the closing process. A settlement agent (i.e., a realtor, title company, or attorney) generally handles documents in the closing process. The tax filer usually does not have to worry about filing this form. Of course, the filer can always confirm with their agent that the form was filed.
Form 1099-S is a small document. It requires the filer’s name, address, closing date, gross proceeds, the transferor’s TIN, and name.
Some scenarios do not require the filing of Form 1099-S. These include:
- A principal residence sold for less than $250,000
- The seller is a corporation or government unit
- The seller is an exempt volume transfer (i.e., sold more than 25 properties in a year)
- Total money, services, and property received is less than $600
1031 Exchange and Form 1099-S
While a 1031 exchange does defer taxes, it does not waive them (i.e., not tax-free). Once the exchanger sells the property, taxes on deferred gains will be owed. The settlement agent must file Form 1099-S for the exchange transaction since it is not exempt.
So yes, a 1031 exchange does require filing Form 1099-S. However, the tax filer generally will not file this form. It is the settlement agent’s responsibility.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
Costs associated with a 1031 transaction may impact investor's returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities.