Question

If I sold rental property in a short sale and received a Form 1099-S, how do I report it on my return?

Answer

Form 1099-S reports the sale portion of the transaction.

Report the sale of your rental property on Form 4797. The sales price is the gross proceeds you received in giving up the property. That’s the amount that was paid down or paid off, plus any other consideration you received in the transaction.

Compute your gain or loss in the usual way — Sales price minus your adjusted basis in the property. You might have depreciation recapture, and you might be subject to loss limitations depending on the circumstances.

You’ll likely receive a Form 1099-C that reports your lender’s discharge of indebtedness. You’ll receive Form 1099-C when your lender cancels your debt, not necessarily in the same year you receive Form 1099-S. There are separate rules for reporting cancellation of debt and potential income associated with it.

Related Topics

Related Resources

IRS Notice CP163 – Reminder of Overdue Taxes

Learn more about notice CP163 and how to handle an IRS tax bill for your business with help from the tax experts at H&R Block.

IRS Manager Conference

Get the facts about IRS manager conferences, which may allow you and the IRS to come to an agreement, but remember to protect your appeal rights.

IRS Business Audits

Is the IRS auditing your business' tax return? Read the IRS definition and get more insight from the tax experts at H&R Block.

How to Avoid IRS Liens and Levies

Liens and levies are tools the IRS uses to collect back taxes. Learn more about each one -- and how to avoid tax liens and levies by working with the IRS.