The short answer
You show it on Form 8824, not by correcting the 1099-S. The 1099-S instructions define gross proceeds as generally the sales price and say a sale or exchange is reportable 'even if the transaction is not currently taxable,' so a full-price form is normal. Form 8824 takes that same consideration through lines 15 to 19 to your realized gain, defers what the exchange covers on line 24, and sends only recognized gain to Form 4797 or Schedule D. If the IRS's matching program still flags the sale, the CP2000 response is a copy of the form plus the closing and exchange documents.
At a glance
| Is the 1099-S wrong? | No; exchanges are reportable sales, generally at the contract price |
|---|---|
| Where the price lands | Form 8824 Part III, as like-kind property received plus any cash or debt relief |
| Simple case | With no debt or costs, line 17 equals the 1099-S gross proceeds |
| Form 4797 line 1a | Only 1099-S proceeds you are reporting on lines 2, 10 or 20 |
| Recognized gain | Form 4797 line 5 or 16, or Schedule D line 4 or 11 |
| CP2000 | Not a bill; reply by the date shown, with documents |
| If you agree | Follow the notice; amend only to add other changes |
A full-price 1099-S is what the rules require, so there is nothing to correct
The Form 1099-S instructions cover any transaction 'properly treated as a sale or exchange for federal income tax purposes, even if the transaction is not currently taxable.' Box 2a is 'generally the sales price' and is not reduced by commissions or other selling costs.
The same instructions allow a settlement agent to enter zero in box 2a and check box 6 for a like-kind exchange with no reportable gross proceeds, but most deferred exchanges run through an intermediary and are reported at the contract price. Who files the form and why, box by box, is covered in the 1099-S and the 1031 exchange.
Asking the closing agent to reissue the form at zero is the wrong fix. The return explains the number; the information return just reports it.
Form 8824 is the bridge from the gross price to the deferred gain
Part III of Form 8824 rebuilds the consideration you received. Line 15 is cash, other property and net liabilities assumed by the buyer, reduced by exchange expenses; line 16 is the fair market value of the like-kind property you received; line 17 adds them. Line 18 is your adjusted basis plus net amounts you paid and any exchange expenses not used on line 15, and line 19 is realized gain.
Line 20 caps the taxable part at the smaller of line 15 or line 19, and line 24 is the gain you defer. Only line 21 recapture and line 22 gain leave the form: the instructions send them to Form 4797 line 16 and line 5 for business property, or to Schedule D for a capital asset.
That is also why Form 4797 line 1a, which totals 1099-S proceeds, does not include your exchange. Line 1a asks only for 1099-S proceeds 'that you are including on line 2, 10, or 20', and a like-kind exchange enters Form 4797 on lines 5 and 16 instead.
Worked example: tying a $1,000,000 Form 1099-S to the return
Hypothetical, round numbers, no mortgage and no selling costs; run your own numbers with your CPA. Your 1099-S shows $1,000,000 in box 2a. Your adjusted basis was $400,000, and you bought a $950,000 replacement, with $50,000 returned by the intermediary after day 180.
On Form 8824, line 15 is $50,000 and line 16 is $950,000, so line 17 is $1,000,000, the 1099-S figure. Line 18 is $400,000, line 19 is $600,000 of realized gain, line 20 is $50,000 recognized, and line 24 defers $550,000.
Real closings add reconciling items: a mortgage paid off at closing raises line 15 unless new debt or added cash offsets it, and commissions reduce line 15 or increase line 18. Keep a one-page bridge from box 2a to line 17 in your file; it is the first thing to send if a letter arrives.
- Box 2a: $1,000,000.
- Line 17: $1,000,000 ($950,000 property plus $50,000 cash).
- Taxed now: $50,000. Deferred: $550,000. Replacement basis on line 25: $400,000.
If a CP2000 arrives, answer it with the form and the closing file
A CP2000 means income information from third parties 'doesn't match what you reported on your tax return,' according to the IRS's CP2000 page. It is not a bill, but it needs a reply by the date shown, stating whether you agree or disagree and including supporting documentation.
If you disagree because the sale was an exchange already reported, send a copy of Form 8824 as filed, both settlement statements, the exchange agreement, the identification notice and the intermediary's closing statement, with a short cover note tying box 2a to line 17. The IRS page lists upload, fax and mail as reply options.
If Form 8824 was never filed, the reply is harder, because the return as filed does not show an exchange. Read I forgot to file Form 8824 before you respond.
Prevent the letter, and keep the exchange easy to read
Make the sale easy to find. The return for the year of the sale should include Form 8824 with the property address on line 1 matching box 3 of the 1099-S, and the transfer date on line 4 matching the closing date.
Exchanges into several replacements, including trust interests, still produce one 1099-S for the relinquished property and usually one Form 8824; see Form 8824 with multiple properties or DSTs. The papers your preparer needs to build the bridge are listed in documents your CPA needs from the QI.
Related questions
Should I ask the title company to correct the 1099-S to zero?
Generally no. A deferred exchange through an intermediary is a reportable sale at the contract price, and Form 8824 is where you explain it.
Why doesn't the 1099-S amount match my closing statement's cash to seller?
Box 2a is gross proceeds before commissions, payoffs and other costs, while the closing statement shows net cash. The difference shows up on Form 8824 as debt relief and exchange expenses.
Do I put the 1099-S amount on Form 8949?
Not for the exchanged property. Form 8824 computes the result, and any recognized gain flows to Form 4797 or Schedule D as its instructions direct.
The CP2000 proposes tax on the whole sale price. Is that the final bill?
No. The notice explains proposed changes and is not a bill; a timely reply with documentation showing the exchange is how you dispute it.
Can my tax preparer answer the CP2000 for me?
Yes. The response form has an authorization section, and Form 2848 lets a representative deal with the IRS on your behalf.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.