Properly reporting the sale of a property
Q: I sold a vacant lot in 2014 in Cape Coral that was closed through a law firm. Last week, I received a “1099” showing the sales price of $200,000. The letter indicated this was being sent to the IRS for reporting purposes. Is the IRS going to come after me for a $200,000 profit? I paid $150,000 for it in 2011, and I also installed a seawall and cantilever dock for $15,000.
A: Law firms, title agents or anyone else closing on property are required to report the sale of property to the Internal Revenue Service. The 1099 is the document that reports the sale, and lists the gross sales price on the form. For your specific situation, you should consult with a Certified Public Accountant to be sure to report the sale properly.
Generally speaking, when you report the sale on your schedule “D” of your 1040 tax return, you will include in your total cost, or “basis,” the total amount you have paid for the property and improvements. On your return, it will be noted that your basis is $165,000, which is the cost of the land plus construction of the seawall. You cannot include maintenance items in basis, such as mowing of the property. However, you can deduct the costs of selling the property, such as real estate commission, title insurance and documentary stamps from the gross sales price. Assuming your total costs were 8 percent, your proceeds would be $184,000. That would result in a net profit of $19,000.
Since you have held the property for greater than one year, the profits will qualify as long-term capital gains. For most taxpayers, that means you will have a 15 percent tax, or $2,850, on the sale.
As always, don’t forget to file on or before April 15! If you don’t file, the IRS just may assume you had a $200,000 unreported profit afterall.
Eric P. Feichthaler has lived in Cape Coral for 27 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown Univer-sity in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 13 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.