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I sold a vacant lot this year. They put a % down and I'm owner financing the rest. Since Uncle Sugar likes his cut the title company gave me a 1099-S.
Since this is a situation that could potentially have serious tax and legal implications, my first thought was that the armchair lawyers and tax accountants at Punaweb would guide me.
The property was sold at a nominal potential profit... but it will be a few years before the down payment and monthly payments add up to actually get me into the black and the 1099 reports the full sale price.
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the title company gave me a 1099-S
Wrong form; you should be generating an annual 1098 for the buyer, and reporting the interest as income. Someone at the title company screwed this up pretty good for you.
Start with demanding that the title company show you the money that they claim you received.
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Try this:
www.irs.gov/pub/irs-pdf/p537.pdf
The 1099 was the proper form.You just need to explain it or pay the taxes up front.You mentioned nominal so I assume it's not a huge amount.
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Wrong, wrong, wrong. You never pay tax on money not yet realized. It doesn't matter what form the title company gives you. When you do your taxes, just report income earned. Tax software will guide you. Problem solved.
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There you have it Terracore....3 plausible answers delivered with certainty! Can all* 3 be correct ? Ever play 3 card Monte? My advice? Seek professional help, rely on their license, sleep easier.
* or 'any of the 3'
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I gave a link to publication 537.It explains in detail what forms need to be filed and it explains that if you don't do it installments you have to pay the tax upfront.
If the tax isn't huge it may be easier to pay it than to hassle with all the extra forms every year.
If you are paying an accountant or use Turbotax you will have to pay extra every year to get the extra forms filled out.
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You never pay tax on money not yet realized.
See above: the interest payments are realized for the current tax year, which is why a 1098 becomes appropriate.
you will have to pay extra every year to get the extra forms filled out
This is part of the reponsibility incurred when financing the property.
3 plausible answers delivered with certainty!
I make payments to an individual and receive a 1098 from their accountant, so I'm pretty certain.
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"you should be generating an annual 1098 for the buyer, and reporting the interest as income."
Fortunately a bank is collecting payments from the buyer and depositing them to me, and they will take care of generating the tax forms for the buyer.
ETA: The part I'm unclear on is when it becomes "income". Until the money I have received is more than what I paid for the property, it isn't income.
(I'm going to run all of this through a tax software and/or tax preparer before I file, but I'm hoping I can get all "knowledged up" before the end of the year).
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The part I'm unclear on is when it becomes "income".
Interest paid is "income" for your acting as lender; eventually there will be long-term capital gain/loss on the underlying asset.
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Anybody else ready for a flat tax?
