1099-A

[mircpa]

Dear friends

I have a client who defaulted in monthly payments on his principal home since last june 2008. He received a 1099-A from his lender with line 2. balance of principal outstanding 152K and line 4 fair market value of property as 176K. Does he has to report this transaction or attach any schedules along with his 1040. Can somebody please share their thoughts on this transaction. Thanks for your help

[LindaB]

Dear friends

I have a client who defaulted in monthly payments on his principal home since last june 2008. He received a 1099-A from his lender with line 2. balance of principal outstanding 152K and line 4 fair market value of property as 176K. Does he has to report this transaction or attach any schedules along with his 1040. Can somebody please share their thoughts on this transaction. Thanks for your help

It would be treated like a 'sale' of his personal residence, so you need to look at it from that standpoint--i.e. does he qualify for the sec. 121 exclusion if there was a gain. There was some discussion last year for a case like this, some said they would not report it on the tax return, others said they would report it, since the taxpayer received the 1099-A, and the IRS doesn't know if it's for a personal residence or some other property.

[David1980]

99% of the time it's not reportable.

1099-A is issued to give the taxpayer information to calculate the gain or loss on disposition of an asset. If it was a rental house that could be important information. A primary home though? Unless they refinanced the home to get additional money and the loan balance is greater than their cost basis they aren't going to have a gain. And if it's a loss it's not reported on the tax return anyway.

I'd just ask what they originally paid for the home and as long as their rough guess is bigger than the loan canceled not give it a second thought.