Make sure you update the IRS and state on amount you receive at close or you could be audited and fined!

By
Real Estate Agent with Keller Williams Realty
 

Last year I sold a listing in Sexton Mountain neighborhood that was being sold because of a divorce. Now, the fact that it was a divorce is partially what lead to the problem that I got the call on today. You see this couple had equity in their home, they had owned their home 23 years and had never refinanced, so they really weren’t hit by the local slide in real estate sales prices.

Well, at close all the proceeds went in to an escrow account for them to fight it out in court who got what and for how much. (You see besides the house, they were also fighting over everything including the lawn furniture. But, despite that battle title had to issue each of them a 1099 stating at the time of close as far as title was concerned it was all being split 50/50 and that is what each 1099 would show.

Home sales and taxes

At the closing table they were told by me and then again by the escrow officer that since this was going in to an escrow account with the lawyers and when it finally goes to court that it may not end up a 50/50 situation, they would in the end need to report the correct amount to the IRS or they could be over or under billed for the 2009 tax year.

Well, here it is May 2010 and I get a call from the ex-wife stating she is being audited because the amount she reported she got is different than what they feel she owed on. You see, she took the 1099 issued by the title company and turned that in with her taxes, which normally would have been the correct thing to do. The only problem is that in the divorce trial she ended up with 83% of the assists from the house which ended up giving her a bigger tax burden.

Now, this wouldn’t have been so bad, but the husband when he filed his taxes as a single person for 2009, he used the updated amount and the ex-wife filled using the old amount. (Basically shorting the government on what they were owed) An honest mistake, but not one the government tends to over look or understand when you try to explain it to them.

Unfortunately, she will end up with not only an additional amount of tax owed, but she is will also be being hit with additional interest and penalties of course.  So, if you are in a situation that the money from the sale of your house is being split, make sure that any changes in that split are reported to the IRS or you to could find yourself in the IRS office writing a big check if they catch it like they did here.

 

Todd Clark - Broker / Sales Coach
All Brokers Real Estate
Phone: (503)524-9494
Fax: (503)622-8739



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©2010 Todd Clark - Make sure you update the IRS and state on amount you receive at close or you could be audited and fined!

Posted by


Todd Clark (broker w/ Ken's Home Team)
Keller Williams Realty
Todd@IFoundYourNewHome.com
Phone: (503)524-9494
Fax: (503)746-9573

 

 

 

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 I am a licensed Realtor who specializes in Washington County, Oregon and also work in both Clackamas and Multnomah Counties including the cities of Aloha, Beaverton, Canby, Clackamas, Gladstone, Gresham, Happy Valley, Hillsboro, Milwaukie, Oregon City, Sherwood and Tigard. All information contained in these posts are copyrighted and cannot be used without prior written approval authorization from the author me Todd Clark. If you are looking for an outstanding agent please give me a call I would love to help you with all your real estate needs.

 

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Re-Blogged 1 time:

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  1. Rebecca Gaujot, Realtor® 05/16/2010 01:46 PM
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Show All Comments
Rainmaker
1,050,562
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

Todd good advice.  I think some folks will benefit from this very important information.  You can't fool uncle sam!

May 15, 2010 11:44 PM #1
Ambassador
748,058
Steve Shatsky
Prudential Texas Properties - Dallas, TX
Dallas Real Estate & Short Sale Specialist (214)213-0340

Hi Todd... Great example of why, especially in a situation involving divorce or estate property, I always recommend professional tax guidance. 

May 15, 2010 11:47 PM #2
Rainmaker
648,017
William James Walton Sr.
WEICHERT, REALTORS® - Briotti Group - Waterbury, CT
Greater Waterbury Real Estate

Ouch! Not a situation I would recommend for either myself or my clients. Thanks for sharing this, it can be passed along as great advice for anyone finding themselves in similar straits.

May 15, 2010 11:48 PM #3
Rainmaker
137,916
Jon Zolsky
FunCoast Realty 386-405-4408 - Ponce Inlet, FL
your Daytona Condo Agent

Todd,

Wow, interesting. I did  not know that, or, better say, never thought about it. Now I know to be more caredul if the situation happen here

May 15, 2010 11:52 PM #4
Rainmaker
617,422
Deborah Byron Leffler BzyBee Real Estate Lady!
Keller Williams Realty Boise - Nampa, ID

wow....great advice!!!

May 16, 2010 12:34 AM #6
Rainmaker
1,172,293
John Pusa
Sellstate Pacific Realty - Glendale, CA
Your All Time Realtor With Exceptional Service

Todd - Many home seller are not aware of IRS owed tax liability, and real estate professionals can not give tax advise. A very educational blog.

May 16, 2010 12:35 AM #7
Rainmaker
589,571
Jim Hale
ACTIONAGENTS.NET - Eugene, OR
On the Move for You! - Eugene - Springfield Oregon Real Estate

All the more reason to avoid the divorce and simply opt for "a fight to the finish".

May 16, 2010 01:18 AM #8
Rainmaker
714,259
Jackie Connelly-Fornuff
Douglas Elliman Real Estate in Babylon NY - Babylon, NY
Douglas Elliman Real Estate in Babylon NY

That is why you talk to your Accountant when selling a home due to divorce.

May 16, 2010 07:03 AM #9
Rainmaker
811,858
Lyn Sims
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago - Schaumburg, IL
Schaumburg Homes

I hate those guys. Sometimes they are not always correct. I've been thru an audit & I feel for Mrs. Seller in that regard. Have to pay attention with income as the IRS wants their cut!

May 16, 2010 08:16 AM #10
Rainmaker
1,821,706
Gabe Sanders
the BlueWater Realty team specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Easily understood mistake, but being warned twice should have been enough to prevent this.  Then again, the fact that she got that much more should be a little relief.

May 16, 2010 08:42 AM #11
Rainmaker
1,353,881
Kristin Johnston, Waukesha Realtor 414-254-6647
RE/MAX Realty Center - Waukesha, WI
Waukesha County Realtor, RE/MAX Buyer Agent

I always use a great cpa for my taxes,and I can't imagine anyone doing their own, especially in this type of a situation...

May 16, 2010 09:57 AM #12
Rainmaker
1,395,538
Rebecca Gaujot, Realtor®
Coldwell Banker Stuart & Watts Real Estate - Lewisburg, WV
Lewisburg WV Real Estate, Greenbrier County

Todd, this is definitely good advice...and, of course, I didn't know this so thanks for the info.

May 16, 2010 01:44 PM #13
Rainmaker
1,227,830
Wanda Kubat-Nerdin
Prado & Kramer Real Estate, St. George, UT 84770 - Saint George, UT
Your Preferred St. George Area Real Estate Agent.

Thanks for the advice Todd. I wasn't aware of this so it will be great information to pass along if I ever have a situation like this.

May 16, 2010 02:00 PM #14
Rainer
108,921
Joe Sosky
KW Commercial - Vancouver, WA
Commercial Real Estate Broker - (360) 816-9652

Good information Todd.  It's why we need to continue to tell our client to consult with their attorney and tax consultant on real estate transactions.

 

 

May 16, 2010 04:44 PM #15
Rainmaker
384,961
John Walters
Frank Rubi Real Estate - Slidell, LA
Licensed in Louisiana

Todd I wonder how many agents want to play tax lawyer and give the wrong advice.  The IRS never sleeps.

May 16, 2010 08:07 PM #16
Rainmaker
496,239
Cal Yoder
Keller Williams of Central PA East - Lititz, PA
Homes For Sale in Lancaster PA - 717.413.0744

Very helpful information. Experience certainly is the best  and sometimes the most painful teacher.

Cal

May 16, 2010 08:29 PM #17
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Tammie White
Benchmark Realty, LLC (615) 495-0752 or www.TWRealtyGroup.net - Franklin, TN
TW Realty Group, Franklin TN, South of Nashville

Thanks for pointing this out.  Haven't had this situation yet but you never know when it may come up.

May 16, 2010 11:55 PM #18
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Todd Clark

Broker - Beaverton, Oregon Real Estate Expert - (503) 524-9494
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