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
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
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
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. …