Form 1099-A - Acquisition or Abandonment of Secured Property

[Yardley CPA]

Can someone please provide a general overview of what is required when a client presents a 1099A form? How is that handled and where (if any) is the information placed on the 1040 return? Does it affect State returns at all? Never worked with a 1099A and would appreciate any guidance at all.

The information I searched for online seems to suggest a 1099C may follow at some point?

Thanks very much.

[Mr. Pencil]

The information I searched for online

Did that include Pub 4681? The rules are complicated only in the sense of having so many possibilities. Once you figure out whether it was business property or a recourse loan or below FMV and a few other things, it's pretty easy to deal with. Typically the lender doesn't need both a 1099-A and 1099-C, so you may not have any cancellation of debt. That could mean either it was a non-recourse loan, the value of the property exceeded the debt, or the balance of the debt is still owing.

[Yardley CPA]

Mr. Pencil...thank you for the reply. I'll ask for additional information.

[Lion EA]

The short answer is you'll report a sale. Then you get into business, personal, recourse, primary residence, etc.?

[Yardley CPA]

Ok...this is what I know:

1099A Contained the following:

Date Box 1 10/7/2013

Balance of principal outstanding box 2 $305,837.28

Fair market value of property box 4 $221,600.00

Box 5 is checked

Box 6 Description XXXXX Street (Personal Residence)

Additional Information:

It was a single family home.

We bought the house in 2005 for $280,500

Then had a second mortgage, and outstanding debt was $305,837.28

The mortgage was through Wells Fargo, it was a 30 year mortgage, and it was something about a fixed rate for 15 years.

This home was included in a bankruptcy in 2011, so the debt was discharged as of Sept 30, 2011.

Any further direction on how to treat/report this would be greatly appreciated. Thank you again.

Edited February 2, 2014 by jklcpa
edited to delete actual street address

[kcjenkins]

OK, report it as a sale, at FMV and keep the info in he client folder in case of any future CP2000.

[Yardley CPA]

Thanks for all the feedback. This property was purchased in NJ and the client is an NJ resident. I assume the basis of the property would be the purchase price (plus any upgrades that took place) of $280,500. What would the selling price be? The FMV of $221,600 or the Outstanding Debt of $305,837? Does anyone know how that works?

Thank you again.

[Terry D EA]

As Mr. Pencil suggested, PUB 4681 will answer your questions. Detailed examples are given regarding the abandonment and the 1099-A. Here is a link for you. Look on page 12 or 13.

http://www.irs.gov/pub/irs-pdf/p4681.pdf

[Yardley CPA]

After reading through Pub. 4681, I believe I will be completing Schedule D and showing a loss on the transaction (not realized). I would include the FMV ($221,600) as the selling price and the purchase price ($280,500) would be the basis. I'd appreciate any thoughts.

From Pub 4681:

Amount realized and ordinary income

on a recourse debt.

If you are personally lia-

ble for the debt, the amount realized on the

foreclosure or repossession includes the

smaller of:

The outstanding debt immediately before

the transfer reduced by any amount for

which you remain personally liable immedi-

ately after the transfer, or

The FMV of the transferred property.

[Mr. Pencil]

it was a 30 year mortgage, and it was something about a fixed rate for 15 years.

This home was included in a bankruptcy in 2011, so the debt was discharged as of Sept 30, 2011.

There are some things in this I don't understand (including New Jersey law on recourse debt). First, did you actually read the bankruptcy decree? Because if the debt was discharged then, why is the foreclosure now? And if it was a recourse loan then why isn't there a 1099-C for the balance? And I don't understand about the amount and relationship of the two loans, and it sounds like you don't either.