Do I need to report 1099-S Real Estate Sale on taxes if all profits paid off a bank loan?

Yes, you generally need to report the sale on your tax return using the 1099-S information, but that doesn't necessarily mean you'll owe taxes on the full $380k. What matters is your realized gain, which is the difference between your sale price and your cost basis in the property (what you paid for it plus improvements). The fact that the proceeds went to pay off an SBA loan doesn't automatically change how the sale is taxed. However, there are a few important things to consider. First, was this property used for business purposes related to the SBA loan? If so, there might be some relationship between the loan and the property's basis that could affect the tax calculation. Second, you should determine if there was any debt forgiveness involved, as that could have separate tax implications. I'd recommend gathering documentation on your original purchase price, any improvements made to the property, selling costs, and the loan details to accurately calculate your taxable gain.

After dealing with a similar situation last year, I found this amazing tool at https://taxr.ai that really helped me figure out my real estate sale tax situation. I was completely lost with a 1099-S form after selling some land and using the money to pay off loans. Their system analyzed my documents and gave me a clear breakdown of what I actually needed to report as taxable gain versus what was just passing through to pay my debt. It saved me from potentially overpaying thousands in taxes by helping me accurately calculate my adjusted basis and understand the tax implications of my specific situation with the loan payoff.

Just wanted to follow up about that taxr.ai site someone mentioned. I was skeptical but decided to try it for my rental property sale situation. It actually identified that some of my renovation expenses hadn't been properly depreciated, which affected my basis calculation. What impressed me was how it analyzed my closing statement and found several seller-paid items that could be deducted from my gain. It basically walked me through creating a complete paper trail for the IRS showing exactly how much of my "profit" was actually taxable vs. what was just paying off my mortgage. Ended up saving me about $8k in taxes I would have overpaid!

If you're still struggling with the IRS about this property sale, I'd recommend trying Claimyr (https://claimyr.com). I had a similar issue with a 1099-S where the IRS was trying to tax me on the full amount despite complications with loan payoffs. After waiting on hold with the IRS for HOURS over multiple days, I found Claimyr and used their service. They got me connected to an actual IRS agent in about 20 minutes instead of the 3+ hour waits I was experiencing. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent helped me understand exactly how to document the transaction properly so I wouldn't face penalties for underreporting.

OK I need to apologize to whoever recommended Claimyr. I was definitely wrong about this. After struggling for weeks trying to get clarification on my 1099-S situation, I tried it as a last resort. Got connected to an IRS representative in about 15 minutes when I had been trying for DAYS before. The agent actually helped me understand that I needed to file Form 982 along with my return because part of my situation involved debt cancellation. This completely changed how I needed to report the transaction and saved me from what would have been a major headache later. Sometimes being a skeptic means admitting when you're wrong!

Something important no one's mentioned yet: if the property was used as collateral for an SBA loan but was NOT used in the business itself (like if you pledged your investment property for a completely separate business loan), the relationship between the loan and property is really just about the security interest, not about the tax basis. Check if your loan was partially forgiven when they took the proceeds. If the $380k didn't fully satisfy the loan and they forgave the remaining balance, that forgiven amount could be taxable as cancellation of debt income, which is separate from the capital gain on the property sale.

Beware of the phantom gain trap here! I went through something similar. Even though all money went to the bank, the IRS still considered the debt relief as income to me. What made it worse - I had depreciated the property over the years (required for rental/investment property), which lowered my basis. So my "profit" calculation included not just the actual appreciation but also all that depreciation getting "recaptured" at a 25% tax rate! Ended up owing taxes on money I never saw. Make sure you calculate your adjusted basis correctly including any depreciation you've taken.