1099-A

[BLACK BART]

Last year a client brought in a 1099-A and wanted it taken care of immediately.  Told him it was involved, he would need purchase contract + other papers (he had nothing) and I didn't have time right that moment. Unmoved, said he was worried and couldn't wait another day, so he went elsewhere.  I didn't know how to handle it anyway, so that was okay with me (other than unsatisfied professional curiosity). He came back this year, said the other guy "grabbed a piece of paper, wrote a couple of things on it, and gave it to me to mail."  

I'm thinking that "piece of paper" maybe was a Form 982 (I've never done one). This was a vacation lake house which the guy stopped paying on, then walked away and left the house empty.  Form info listed is: lender/ date of lender's acquisition or knowledge of abandonment/ balance of principal outstanding/ fair market value/ property description/ a checked box indicating the borrower was personally responsible for repayment of the debt.  Amount owed was $95K and change; FMV was $93K.

If my guy was telling the truth, could it be that the other prepper simply checked the 982 box 1b (discharge of indebtedness to the extent insolvent {not in a title 22 case}), had it mailed, and that killed off the 1099-A? Is it that easy? 

 

[Pacun]

I file form 982 if the client received form 1099-C and I do it when I prepare the return and send it together.

Yes form 982 is a simple form but I don't know if it can be file by itself.

[Gail in Virginia]

Every time i have had occasion to file a 982 for insolvency, I have done it with a return AND the IRS has later requested information in support of the insolvency (basically a balance sheet that shows more liabilities than assets.)

[grandmabee]

It's not a simple return.   You must have all the information to support insolvency.  There is a lot of liability on the line for just marking the box and sending in.

Only time it might be considered simple if a bankruptcy is involved.

[Pacun]

1 hour ago, grandmabee said:

It's not a simple return.   You must have all the information to support insolvency.  There is a lot of liability on the line for just marking the box and sending in.

Only time it might be considered simple if a bankruptcy is involved.

For a bank to forgive a debt (on a non-primary residence), it is about 99% chances you are/were bankrupt.

[Lee B]

29 minutes ago, Pacun said:

For a bank to forgive a debt (on a non-primary residence), it is about 99% chances you are/were bankrupt.

Actually, I have had 3 clients, with former residences turned into rentals, where the debt was forgiven and they weren't bankrupt, but they were insolvent. At the time of the debt forgiveness,

all 3 were renting. I filled out the 982, no questions from the IRS.

[Pacun]

Insolvent is what I meant to say... not bankrupt. I have done about 5 of them and the IRS has not questioned them.

[Lion EA]

Is the 1099-A for the abandonment of the building?  So, like a sale?  With the forgiven debt to come later on 1099-C?

[Catherine]

3 hours ago, Lion EA said:

Is the 1099-A for the abandonment of the building?  So, like a sale?  With the forgiven debt to come later on 1099-C?

Yes, like a sale.  I forget which boxes mean what and have no examples to hand (they're all at the office, where I am NOT; my poor husband just got in from snow-blowing and looks like a drowned rat), but I can get those to you later if you need/want.

The forgiven debt *should* come later on a 1099-C and if the person is lucky that will come sooner rather than later.  Those can show up YEARS afterwards, when the poor schmuck is no longer insolvent and then they have COD income and a tax bill.

[Lion EA]

I've had only one, and it was years ago.  But, I see these questions more and more on message boards, so it must be getting more common.  So, I'm trying to pay attention!

[Jack from Ohio]

1099-A is treated like a sales document.  The sales price is the amount of the forgiven debt.  Basis is calculated in the normal manner.  This is NOT a cancellation of debt and Form 982 IS NOT APPROPRIATE.  FMV may be listed on the form, but serves no purpose.

If it is for the clients primary residence and there is a gain, the exemption may apply.  If a loss, nothing else to be done.

If the form is for a rental property, you treat it like you are selling it to the bank for the amount of the forgiven debt.  FMV is only on the form for decoration.  In the case of a rental property, with depreciation recapture, there may be a taxable gain.

Cancellation of debt is an entirely separate unrelated transaction with different processes and rules.  This only happens when Form 1099-C is issued.

[BLACK BART]

1 hour ago, Jack from Ohio said:

1099-A is treated like a sales document.  The sales price is the amount of the forgiven debt.  Basis is calculated in the normal manner.  This is NOT a cancellation of debt and Form 982 IS NOT APPROPRIATE.  FMV may be listed on the form, but serves no purpose.

If it is for the clients primary residence and there is a gain, the exemption may apply.  If a loss, nothing else to be done.

If the form is for a rental property, you treat it like you are selling it to the bank for the amount of the forgiven debt.  FMV is only on the form for decoration.  In the case of a rental property, with depreciation recapture, there may be a taxable gain.

Cancellation of debt is an entirely separate unrelated transaction with different processes and rules.  This only happens when Form 1099-C is issued.

It wasn't a primary residence or a rent house - just a summer place he could no longer afford. I don't KNOW the filed doc was a 982, but couldn't think what  else could have been done so quickly - said he was out the door in 20 minutes.  I had already filed 2015 before he got the notice so it didn't go in with the tax return.  He did not and has not received a 1099-C yet.  But maybe, as Catherine says, he'll get one later.  In the meantime, it's been a year, nothing's come up, and he's either lucky or living in a fool's paradise.

I've filed a 1099-C for others on forgiven credit card debt on 1040 line 21, but I've noticed that NOT ALL the credit card companies actually issue a 1099-C.  In any case, it seems to me that IRS enforcement on this sort of thing is spotty and inconsistent. If clients are to be believed (a long shot, I know) many have told me of other such infrequent situations where I KNOW they should have received later IRS notices, but never did. 

https://www.irs.gov/pub/irs-pdf/f1099a.pdf

https://www.irs.gov/pub/irs-pdf/f982.pdf

I think line 1b in Part I of the 982 would apply here.

[BLACK BART]

7 hours ago, Pacun said:

Insolvent is what I meant to say... not bankrupt. I have done about 5 of them and the IRS has not questioned them.

Do you mean five form 982s? If yes what box did you check in Part I and did you fill in anything else on the form or attach anything? 

[Pacun]

Bart,

This is what I do, when I receive 1099-A, I file Sch D to report the "sale" or reposition. Most of the time, they don't issue 1099-A and 1099-C in the same tax year, but sometimes do. When I get 1099-C I file 982 or pay the tax. I have file about five 982s for houses when I have received 1099-C and the IRS has not questioned the tax payers.

 

So, Sch D takes care of 1099-A and 982 takes care of 1099-C. As you know if both forms are received in the same year, you file both Sch D and 982.

[Lion EA]

Lisa Ihm is a good source for 1099-C information, and the preceding 1099-A:

http://www.lisaihm.com/Contact_Us.html