I need to know how to report the following real estate issues...


We spoke with the IRS, specifically with information reporting specialist Mr. Rafferty, ID #1000677987, and below is the guidance he provided, citing from the IRS Instructions for Form 1099-S and Instructions for Form 1099-MISC. Below are your questions followed by the answers.

Q. We purchased land from and individual and paid a certain amount, and as part of the agreement paid off deed of trust. Does the individual get a 1099-S for the full amount of purchase? Do we send anything to the bank?

A. Yes, the individual gets a 1099-S for the full purchase amount. Report the gross proceeds on Form 1099-S. No, you don't need to send anything to the bank, just report gross proceeds to the seller. (Mr. Rafferty says the seller is in the role of “nominee middleman” and may have reporting responsibilities with regard to the bank.)

Q. Installment payments for land purchase?

A. Report on Form 1099-S the gross amount at time of sale. See the Instructions for Form 1099-S, page 4 “Box 2. Gross Proceeds”—“gross proceeds means any cash received or to be received …”

Q. Consideration paid for an option to purchase?

A. Report on Form 1099-MISC, box 3, if the consideration paid was $600 or more.

Q. Purchase of land from a corporation?

A. Do not report; corporations are exempt from reporting, per 1099-S instructions (page 1-2 “Exceptions”).

Q. Consideration paid for lease option?

A. Report on Form 1099-MISC, box 3, if the consideration paid was $600 or more.
(Note: If actually leasing property, reporting depends on whether the lease is perpetual, i.e. for 30 or more years; if so, report on 1099-S; if not, report on 1099-MISC in box 1 Rents.)

Q. Consideration paid for loss of use of natural gas from gas well?

A. We understand this to be payment to the owner to make them whole from the loss suffered due to your actions—that would make this reimbursement for loss, and is not reportable.

Q. Consideration for acknowledgement of rights, waiver and release agreement?

A. This sounds like a perpetual easement; if so, it should be reported on the 1099-S.

Q. Consideration for damages?

A. Depends on what you mean by “damages.”
If it is similar to item concerning the gas well above, i.e. a reimbursement, then there is no reporting required. But if this is a settlement and the damages include punitive damages, report on 1099-MISC in box 14.

Q. Waiver release of right of lateral, subjacent and other support?

A. Are you paying for the mineral rights on adjacent land? So you are not buying land, but paying for rights; for example, to tunnel under the owner’s land and extract the coal? That payment would be a royalty, reportable on 1099-MISC in box 2.

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