I am so confused!

[Tax Prep by Deb]

I have about five clients whose homes have been foreclosed upon. The first one was only given a 1099C, so I filled out the fom 982 and as this was a qualifying residence I took that exclusion. My question with this has to do with the reduction of tax attributes. She does not have her home any longer and the only real asset she has is her car which she probably owes more on than it's worth. Do I need to fill out anything for the reduction of tax attributes, or do I just leave this blank?

Client #2 only received the 1099A so am I understanding this right that I only need to report the sale on schedule D? He does satisfy the section 121 exclusion, has he had lived there 2 out of the past 5 years. He barely met the exclusion as he moved in December of 2006, kept both places for 2007 but lost the first one in April of 2008. He says he has not received a 1099C, so am I correct in only doing the schedule D. What if the 1099C comes in 2009?

Like I said I am so confused. I have read and read and read up on this, and the more I read the more confused I get. And yes both of these clients apperantly have non-recourse loans as the box is marked that they are not personally liable for the loan.

Any help would be greatly appreciated!

Deb!

[RoyDaleOne]

See:

http://www.irs.gov/instructions/i1099ac/index.html

Form 1099A, generally, does not create a reportable situation on the Form 1040.

This is because the debt has not forgiven or cancelled at the time 1099A was filed.

There are situations where it is a reportable event.

Generally, a Form 1099C creates the reportable event.

[JohnH]

I'm thinking that if I get any of these this year I'm going to tell them they will have to go on extension to give them and me time to sort it all out. There may be exceptions to that rule if the matter is clear-cut and simple, but for most of them this is not a routine tax prep and they need the best attention I can give - certainly not while the main rush is going on.

[David1980]

1099-A is used to calculate the gain or loss on disposition of an asset. If it's a personal home unless they refinanced way above the original purchase price it's a loss or within the exclusion amount. No reporting required. If it's a rental/business or investment property then you may have a reportable gain or loss.

1099-C is used when there is cancellation of debt income. For a personal home generally Form 982. Form 1099-C can also be used to report the same information as Form 1099-A when there is cancellation of debt income. So potentially the taxpayer could receive both a 1099-A and a 1099-C in one year, or a 1099-A one year a 1099-C in a later year, or just a 1099-C. If there's a FMV in box 7 it's serving the function of both Form 1099-A and 1099-C in which case the first paragraph about 1099-A also applies to 1099-C.

[LindaB]

I have about five clients whose homes have been foreclosed upon. The first one was only given a 1099C, so I filled out the fom 982 and as this was a qualifying residence I took that exclusion. My question with this has to do with the reduction of tax attributes. She does not have her home any longer and the only real asset she has is her car which she probably owes more on than it's worth. Do I need to fill out anything for the reduction of tax attributes, or do I just leave this blank?

In the instructions for form 982 it says that if the discharged debt you are excluding is from qualified principal residence indebtedness.......if you continue to own your residence after the discharge, enter on line 10b [reduction of tax attributes section] the smaller of (a) canceled debt or ( basis. So I assume that if you don't still own the home, you don't have to use line 10b.

[LindaB]

Client #2 only received the 1099A so am I understanding this right that I only need to report the sale on schedule D? He does satisfy the section 121 exclusion, has he had lived there 2 out of the past 5 years. He barely met the exclusion as he moved in December of 2006, kept both places for 2007 but lost the first one in April of 2008. He says he has not received a 1099C, so am I correct in only doing the schedule D. What if the 1099C comes in 2009?

Yes, with a 1099A you only need to report the sale. In this case, since it is a personal residence, any loss is not allowed, and any gain excluded under sec. 121, you could not report it on sch. D (not report it at all on the tax return), but I would at least make preparer notes in the program describing the 'sale.'

If the client gets a 1099C in 2009 you will try to exclude the COD income either because it was a principal residence or because of insolvency, using form 982.

[LindaB]

Like I said I am so confused. I have read and read and read up on this, and the more I read the more confused I get. And yes both of these clients apperantly have non-recourse loans as the box is marked that they are not personally liable for the loan.

If it's a non-recourse loan, there will be no COD income. A 1099-C doesn't have a box to check for recourse or non-recourse, because the 1099-C is reporting COD income, so it must be a recourse loan.