Wednesday, April 11, 2012

What to do with a 1099-S

Q.  I just received a 1099-S form and I don't have any idea what to do with it. My husband and I filed a 1040A form in late January. We sold our house at a loss, have moved, and have since both been struggling to find work. We were told the loss from the sale of a personal residence was non-deductible, so did not include it on our tax return. Will we get into trouble?

A.  Trouble, no, aggravation, possibly. When the IRS computers process that 1099-S, they will expect to find it on your return. You need to report the sale to show the loss, even though it cannot be deducted. There are many instances where an item is reportable, but not necessarily taxable. This is one of them. Wait until after April 17th, then you can  download an amended 1040X along with Schedule D, and properly report the loss. This should save you the aggravation of receiving a notice from the IRS in a year or two with a letter asking for payment. All the IRS computers know is that you received $ XXX.XX. They have no idea what your basis in the residence is. This is why you need to report it.

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