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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  1. Rebecca Gaujot, Realtor® 05/16/2010 01:46 PM
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Comments 17 New Comment

Rainmaker
1,139,509
Wanda Kubat-Nerdin
Your Southern Utah Residential Real Estate Agent
Prado & Kramer Real Estate, St. George, UT 435.632.9374

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
Rainer
108,921
Joe Sosky
Commercial Real Estate Broker - (360) 816-9652
KW Commercial

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
Rainmaker
383,895
John Walters
Licensed in Louisiana
Frank Rubi Real Estate

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
Rainmaker
484,596
Cal Yoder
Homes For Sale in Lancaster PA - 717.413.0744
Keller Williams Realty Lancaster

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

Cal

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

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
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Todd Clark

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Helping Families Home is a blog set up to help families find that perfect home for them. I have a family and I understand how hard it can be to find a home that everyone is happy with. Let me help you find that home and help your family home.


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