1099-A with a twist

[taxbrewster]

Ok T/P filled bankruptcy in 2010, home was included. Then got married in 10/1/11 to one of my clients who already has a home, rental, and solid career. T/P receives a 1099-a for 2011 with the date of abandonment of 4/6/11.

Box 2 - $95,376.59

Box 4 - $32,000.00 FMV

Box 5 - checked

My question is, how should I report this? How does it affect my client? It shouldn't correct? Do I still report this on sch D and exclude it because it was T/P principal resident at the time before he got married to my client? Or is that going to cause an issue because they are married now? Any guidance would be helpful.

Thanks again for this community...Good luck, we are almost finished!!

[Lion EA]

When were his debts discharged in bankruptcy? Wasn't the home mortgage discharged at that time, too? Should he be giving the Form 1099-A to the bankruptcy trustee? Did your client get his full story before marrying him? Do you have a good marriage counselor to recommend to them?

[taxbrewster]

To my understanding the debts were discharged near the end of 2010. Again, that was my understanding that the mortgage was included.

As far as I know, they held off on getting married until everything was finished. Looks like that is not the case...

[jainen]

>>is that going to cause an issue because they are married now?<<

The 1099-A is separate from any cancellation of debt. It is treated as a sale with gain or loss. The bankruptcy estate may have taken a shortcut, returning the secured property to the debtor still subject to later foreclosure on the recourse loan. Read the court documents! Anyway, if only one spouse met the 2 out 5 year tests, maximum Section 121 exclusion is $250,000.

BUT remember that basis was reduced by any cancellation of debt in bankruptcy, unless he had NOL or other tax attributes. My understanding about non-business assets is that the basis reduction is recovered like Section 1245 depreciation.

It sounds like your client still owes either the mortgage or taxes following the bankruptcy, at least from the lender's point of view. Read the court documents!

[Pacun]

It seems that your client is "selling" the house at a loss!!! File Sch D with a loss and make it a personal loss so he doesn't get the 3K loss every year. This needs to be done even if included in bankruptcy since according to the IRS you had a property and sold it.

If a 1099-C shows up later on then you invoke the bankruptcy shield and file for 982.

"It sounds like your client still owes either the mortgage or taxes following the bankruptcy".

I think client filed for banckruptcy and later on the bank repossed the house and the bank had to document the repossession with a 1099-A.

[taxbrewster]

Thank you for the assistance. Dont work too hard this weekend!!