Each year, as April 15 draws near, I am reminded of one of my husband's uncles, who is distinguished among my in-laws as never having paid a cent of income tax in his life.
A subsistance farmer owning a small stretch of land in the fertile Rio Grande Valley of south Texas, he grew all the meat and staples his family of four consumed. He is of retirement age, and his children are grown and gone, but he still tills the soil for a living. Any surplus is traded for goods he can not produce.
And if a good year happened to yield a bumper crop, his friends and relatives are the beneficiaries, not the Internal Revenue Service.
My husband's family considers George something of a hero. George's land, they say, is worth far more than the vegetables it produces, and he could easily sell it and live off the profit, but then he'd probably have to pay income tax. And that would be the end of the wonderful non-taxing era.
Not all holders of real estate are so fortunate, at least when it comes to paying taxes. For their benefit, the Internal Revenue Service has issued some tax reports of special notice.
These reports, summarized below, cover new rules affecting the sale of real estate, first-time homebuyers and tax depreciation on required education courses, which apply to many in the construction and real estate industry.
- Sales of homes and certain other real estate after 1986 must be reported to the Internal Revenue Service by the real estate broker, the IRS said. The settlement agent or other person responsible for closing the transaction generally is treated as the real estate broker for this purpose.
The broker reports the sale to IRS on Form 1099-B, ``Statement for Recipients of Proceeds From Real Estate, Broker, and Barter Exchange Transactions.'' Form 1099-B shows the name and address of the seller, the gross proceeds from the sale, and certain other information. (For closings after 1987, real estate brokers will file a separate new form, Form 1099-S, ``Statement for Recipients of Proceds From Real Estate Transactions.'')
A copy of Form 1099-B is provided to the seller. This helps the seller file an accurate tax return.
The IRS uses computers to match information received from brokers on Form 1099-B with information reported by taxpayers on their tax returns.
Reporting on Form 1099-B is required for 1987 for the sale or exchange of any structure designed for one to four families, such as a house, duplex, or four-unit apartment building. In 1988, reporting may also be required for certain other real estate, according to IRS.
Forms 1099-B for 1987 must be filed with IRS after December 31, 1987, and by February 29, 1988. Penalties may apply for failing to file Form 1099-B for transactions closing on or after May 4, 1987.
In most cases, Form 1099-B must be filed on magnetic tape, diskette, or other magnetic media. Filing on paper forms is allowed if a broker expects to file less than 250 Forms 1099-B for a calendar year to report real estate transactions, or if a broker receives an undue hardship waiver. For 1987, a waiver will be granted to brokers who, in good faith, indicate they expect to file less than 500 Forms 1099-B for real estate transactions closing in 1987.
For more information, taxpayers and brokers can get Form 1099-B and the ``1987 Instructions for Reporting Real Estate Transactions on Form 1099-B.'' Publications and forms are available by using the order blank in the tax return package.
- When taxpayers purchase their first home, they should begin recordkeeping by saving a copy of the settlement or closing statement. This will help them establish the basis in their home.
The basis is usually the cost or purchase price of the home. Other items such as legal fees and transfer taxes may be added to their basis. …