How does the IRS know that I sold my home?

Sales and exchanges of residences must be reported to the IRS on Form 1099-S by the attorney, title company, or other party responsible for closing the transaction unless you sign papers indicating that your entire gain will be excluded as a gain on the sale of a residence. The purpose of Form 1099-S is to allow the IRS to match the amount on the 1099-S with the amount you have reported on your tax return. If you receive a Form 1099-S, the IRS may check your return to verify that you have reported the proceeds.