Mobility – October 2019 - 30

WORLDWIDE ERC ® GOVERNMENT AFFAIRS 2019

EFFECT OF CAPITAL GAIN EXCLUSION
PROVISION, SECTION 121

Prior to 1997, all sales of homes by individuals
were required to be reported to the IRS on Form
1099-S. The 1997 change repealing Section 1034 and
adding an exclusion for capital gain from sale of a
principal residence also added a provision to the
real estate reporting rules-Section 6045(e)(5)-
under which sales whose gross proceeds do not
exceed the applicable exclusion amount ($250,000
single, $500,000 married filing a joint return) do
not have to be reported. (Note that this exception
is essentially elective: The reporting person is not
required to take advantage of it.)
For the sale to be excused from reporting,
certain conditions must be satisfied. The person
responsible for reporting must receive written
assurance that the residence is the seller's principal residence and that all the gain is excludable.
The reporting person must obtain from the seller
a written certification, signed under penalties
of perjury, containing a number of assurances
that are specified in Rev. Proc. 2007-12 and in the
instructions for Form 1099-S. Generally, the seller
certifies that the home was the principal residence
for two of the previous five years, and other
things necessary to conclude that the capital gain
exclusion rules would apply.
No particular format is prescribed for the certification, but a sample is provided. The certification may
be obtained at any time up to 31 January of the year
following the sale and must be retained for four years
after the year of sale. In the case of multiple sellers
(such as married couples), a certification must be
obtained from each.
Note that the reporting exception applies only to
gross proceeds (that is, sale prices) below the exclusion thresholds, not to gain below them. For example,

30 Mobility | October 2019

a sale by a single taxpayer for $350,000 must be
reported, even if the gain on sale is only $200,000.

DIRECTED OFFERS

If the employer or someone acting on behalf of the
employer purchases an employee's house but pays
an amount in excess of the fair market value, the
excess should be included in the employee's compensation on his or her W-2 and treated as other
wages would be. Only the actual fair market value
of the home should be reported as "gross proceeds"
on form 1099-S.

MULTIPLE OWNERS OF HOME

The regulations provide that when multiple parties
own the property sold, each seller must be given a
separate Form 1099-S in his or her own name (Treas.
Reg. 1.6045-4(f)(1)). The proceeds must be allocated
between them. Section 1.6045-4(i)(5) provides rules
for making the allocation. Generally, the reporting
person must request that the transferors (the sellers)
provide an allocation of gross proceeds. The reporting
person must usually respect an allocation received
timely but otherwise simply reports the entire gross
proceeds on each Form 1099-S. However, an exception provides that in the case of married sellers, only
one Form 1099-S is required, and it may include the
name and Social Security number of either spouse.

A COMPLICATED SUBJECT

As the foregoing demonstrates, reporting of real
estate sales is a complicated subject, but unfortunately one that must be understood by those engaging in relocation real property transactions. M
Peter Scott is Worldwide ERC® tax counsel and principal
of Peter K. Scott Associates. He can be reached at +1 910
579 5332 or pscott@worldwideerc.org.



Mobility – October 2019

Table of Contents for the Digital Edition of Mobility – October 2019

Mobility – October 2019 - Cover1
Mobility – October 2019 - Cover2
Mobility – October 2019 - 1
Mobility – October 2019 - 2
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Mobility – October 2019 - Cover3
Mobility – October 2019 - Cover4
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