By JC Leahy, MA Accounting
Twitter@TaxHelpWhenNeed
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There is a lot of misinformation out there about the Form
1099-A (Acquisition or Abandonment of Secured Property. Taxpayers are often confused because they
were expecting to receive a 1099-C (Forgiveness of Debt) and found a 1099-A in
the mailbox instead. Alternatively, they
are confused because they received both a 1099-A and 1099-C from the same
foreclosure. I’ll try to clarify this
for you as succinctly as possible.
To put it in context: The IRS needs to be notified every time
real property is sold. After a normal
real estate sale, the seller receives a Form
1099-S (Proceeds from Real Estate Transactions) to report the sale to
the IRS. In a “short sale” or deed in
lieu of foreclosure, the property owner also receives a 1099-S because he gave
up the property willingly. In the case
of a foreclosure, however, the property owner’s giving up the property was involuntary. That property owner receives a different
form; namely, Form 1099-A. Form 1099-A
serves the same basic purpose of reporting to the IRS that the property has
changed hands. The lender will issue the
1099-A.
Form 1099-C, on the other hand, indicates that the lender forgave
the mortgage debt. You won’t always get a 1099-C after a
foreclosure. For example, the value of
the seized property may be enough to pay off the mortgage; therefore, there’s
nothing to forgive. You might receive a 1099-C but no 1099-A
because filing the 1099-C satisfies the lender’s obligation to issue a
1099-A. You may also receive both, but
in that event Boxes 4, 5, and 7 on the 1099-C
would be left blank.
Use the 1099-A just as you would a 1099-S: to calculate gain
or loss on the “sale” of the property.
Use 1099-C instead of 1099-A to calculate gain or loss if you did not
receive a 1099-A. Then, in any event, if
you received a Form 1099-C, use that to calculate your forgiveness-of-debt
income.
That’s it in a nutshell.
For more details about how to compute gain/loss and forgiveness of debt
income, see my earlier article at the link below:
Tax Implications of Foreclosures and Short Sales
Tax Implications of Foreclosures and Short Sales
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