Bulletin: SLS00345

The "Taxpayers Relief Act of 1997" generally allows taxpayers, on the sale or exchange of a principal residence, to exclude up to $250,000 of gain individually or $500,000 of gain if a married couple filing jointly. The exclusion may be used once every two years. The land must have been used as a principal residence for two of the last five years. 

In order to comply with recent changes in the law, the seller certification has been modified effective January 22, 2007. The American Jobs Creation Act of 2004 and the Gulf Opportunity Zone Act of 2005 provide that the exclusion for gain does not apply if the principal residence was acquired in a like-kind exchange for which gain was not recognized under Section 1031(a) or (b) of the Internal Revenue Code within the last five years.

"Real Estate Reporting Persons" do not need to file a 1099-S on sales or exchanges of principal residences, if:

• The sales price is at or below $250,000 if the seller is a single individual, or $500,000 if the seller is married.
• The Real Estate Reporting Person secures a certification from the sellers in form acceptable to the IRS.
• The Real Estate Reporting Person retains the certification for four years after the year of the sale or exchange of the residence.

The Real Estate Reporting Person usually is the settlement agent on the HUD-1.

The IRS has now approved a modified seller certification, which is available for use on and after January 22, 2007. The certification has three parts, which must be completed by each seller: Part I (name, address or legal description of the residence being sold, and taxpayer identification number); Part II (regarding use and ownership of the property); and Part III (seller's signature). The sellers must say "true" to each question in Part II (or ?not applicable? to assurance (6)), or you cannot rely on the certification.

If there are multiple sellers, you must obtain a certification from each seller or report on that seller.

If one of the sellers does not complete the certification (and say "yes" to each question in Part II), you must do 1099-S reporting on that person. In that case you must request an allocation of the sales price among the sellers. If no allocation is given, you must show the entire sales price on the 1099-S reporting on that person who does not complete the certification.