1099-A vs. 1099-C

What is the difference between a 1099-A and 1099-C, and how will we know when our bank canceled our mortgage debt?

We had a piece of raw land (lot) in TX that was foreclosed on in 2009. We received a 1099A from the bank showing the bank taking a substantial loss (mortgage owed at time of foreclosure compared to FMV at time of foreclosure). We are personally liable for the debt as it is recourse debt. We have not received a 1099C. Our tax accountant is showing that we have no income to report in 2009 as we are still personally liable for the debt. I read on your site that TX has a 2 year statute of limitations on the debt collection. At what point does the debt that exceeded the value of the property become taxable to us? What must the bank send us to show that it is taxable once they relinquish their rights to sue (as long as 2 years from the foreclosure)?

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  • A lender issues 1099-A when a borrower abandons a property.
  • A financial institution issues a 1099-C when it forgives a debt.
  • Canceled mortgage debt may not be taxable.

A creditor is required to issue a 1099-A when a borrower abandons real or personal property. According to the IRS 1099-A instructions, "An abandonment occurs when the objective facts and circumstances indicate that the borrower intended to and has permanently discarded the property from use."

A 1099-A is not a notice of forgiveness. It is unclear to me what the purpose of a 1099-A is, other than to alert the IRS that at some point in the future the entity reporting the borrower's abandonment may issue a 1099-C.

A 1099-C is a notice to the IRS that the financial institution has forgiven or canceled a debt of $600 or more. See the IRS Instructions for Forms 1099-A and 1099-C and IRS Form 982 to learn more.

If the financial institution issues a 1099-C to you, then it has forgiven the debt and you must report the amount on the 1099-C as income. Fortunately, the Mortgage Forgiveness Debt Relief Act allows taxpayers to exclude income from the discharge of debt on their principal residence. It includes the cancelation of the complete debt, or if the mortgage terms were renegotiated.

If the financial institution issues a 1099-C to you, it will probably not pursue you for the deficiency balance because it has deducted the loss on the loan from its taxes. However, there is no guarantee the financial institution will not pursue you for the deficiency balance and then later amend its tax returns. However, such a chain of events is unlikely.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

21 Comments

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  • 35x35
    Apr, 2012
    PaDua
    I had taken out two loans for my home which was foreclosed last year. I received a 1099 a & c from one institution and just a 1099a from the other. How do I go about filing with just one of the 1099c?
    0 Votes

    • 35x35
      Apr, 2012
      Bill
      Follow the instructions you find in the IRS Form 982, or consult with an experienced tax preparation specialist, or contact the IRS directly.
      0 Votes

  • 35x35
    Apr, 2012
    Frasier
    My husband and I sent a certified letter to our bank in May, 2010, informing them that we were forced to abandon the property for health reasons, and enclosed the keys. They waited several months before starting foreclosure and did not complete the process until August, 2011 when they bought back the property for $230,000 less than we paid for it. They resold the property in December, 2011 for $30,000 more than they paid. We finally received a 1099-A that says in Box 1 that they acquired the property in December, 2011 (which is incorrect; they purchased it in August) also ignoring that we abandoned the property via certified letter in 2010. Should we ask them to send a corrected 1099A for August, 2011 (when they purchased the property) or for May, 2010 when we notified them of the abandonment? If they ever forgive the debt, we would not qualify for the 2-year primary residence requirement if the December 2011 date is used.
    0 Votes

    • 35x35
      Apr, 2012
      Bill
      A 1099A is intent to forgive, whereas a 1099C is the form showing actual forgiveness. I recommend that you speak with a tax professional who can help clarify which date can be used to determine the date of sale and the necessary time frame to qualify the house as your acceptable primary residence.
      0 Votes

  • 35x35
    Mar, 2012
    Jeff
    I have received a 1099A for tax year 2010 (foreclosure date Sept,2010) The bank sold the property July 2011. I did not receive a 1099C for 2011. Does the lending bank have a time limit for issue? (Mortgage amount $205K plus costs, sales price $38K)
    0 Votes

  • 35x35
    Feb, 2012
    Natalie
    What happens if the lender NEVER sends you a 1099A or 1099C? I called and they said they have no tax record information on my account, so it seems there is nothing to send out.
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      The lender may not qualify as the type of business required to issue 1099-As or 1099-Cs. Or, the debt was less than $600. Or, the lender misplaced your files. Or, the lender is not complying with the law.
      0 Votes

  • 35x35
    Feb, 2012
    Gary
    If I received a 1099 A from a lender for a foreclosure, do I need to show that on my taxes?
    0 Votes

    • 35x35
      Feb, 2012
      Bill
      1099-A? No.

      1099-C? Yes.

      See the links to IRS pages in the original answer above to learn more.
      2 Votes

  • 35x35
    Jan, 2012
    Jerry
    My question relates to a personal loan made in 2008 to a non-relative and for which a signed promissory note was written. Scheduled payments were made on the loan until early 2011 when the borrower abandoned further payments and made no reply to a final demand payment letter with a specified date which was sent in mid-2011. As an individual lender, I have concluded that, due to the borrower's financial situation, the loan balance of $13000 will no longer be collectable. Am I able to declare cancellation of the remaining balance of debt and file a 1099-C in the name of the borrower? Thanks.
    0 Votes

    • 35x35
      Jan, 2012
      Bill
      I am not a tax professional and don't have all the facts that I would need to offer a full opinion, but will share some thoughts.

      As an individual lender (not an institution), you likely do not need to issue a 1099-C. The non-business bad debt can still be taken as a capital loss on Schedule D, but you should be absolutely sure that no collection of any part of the debt is expected. It would be wise to consult with a tax attorney to determine whether sufficient collection actions have been taken before writing off the loss.
      0 Votes

  • 35x35
    Oct, 2011
    April
    I received a 1099-A for 2010 from my mortgage lender. The "Date of lender's acquisition or knowledge of abandonment" in box 1 is 3/2/10. I called the mortgage company who told me they completed foreclosure on 8/25/10 and that there was a $0 Principal balance on the account. I asked did that mean my debt was forgiven, but the agent did not know. What should I expect next and does it sound like to you my debt has been forgiven?
    0 Votes

    • 35x35
      Oct, 2011
      Bill
      The 1099-A is a maddening document, as I try to convey in the first two paragraphs of my original answer above. If anyone can offer a better explanation of the 1099-A's purpose, I welcome it in the comments below.

      Consult with a tax preparation specialist or tax lawyer about filing a Form 982 with your 2010 tax return. Do it right away, as you can only use the Form 982 until October 15, 2011 for tax-year 2010.
      0 Votes

  • 35x35
    Aug, 2011
    Henry
    When a 1099-c has been issued (on a credit card account) and the creditor (Chase in this case) later on upon doing a loan modification on the residence (mortgage also held by them)then demands the cancelled amount must be paid first before they will issue the loan how does the IRS handle Chase's "double dipping". Can Chase demand that the 1099-c be ignored ? Thank you for your answer.
    0 Votes

    • 35x35
      Sep, 2011
      Bill
      I believe the IRS would require Chase to issue an amended 1099, so it did not get the benefit of the tax write-off and be able to collect on the debt, too.
      0 Votes

  • 35x35
    Feb, 2011
    kempton
    If I receive a 1099-C for a non-mortgage debt, am I stuck with paying taxes on the amount listed? I can see that I would not be covered by the Mortgage Forgiveness Debt Relief Act. Please let me know, Bill, if there is something that I am missing. Thank you
    1 Votes

    • 35x35
      Feb, 2011
      Bill
      You may or may not have to declare the forgiven debt as income. Look into the Form 982. This form can be used to avoid declaring forgiven debt as income, but you have to meet an IRS test for insolvency. I strongly recommend that you speak with a tax professional. Remember, your potential tax obligation is tied to the year the debt was forgiven and the 1099-C was issued. If you received the 1099 in 2010, then the Form 982 needs to be attached to the return that is due in April, 2011. If the debt was forgiven in 2011, make sure to discuss the Form 982 with your tax preparer in time to file your 2011 return in April, 2012.
      0 Votes

    • 35x35
      Feb, 2012
      Howell
      What is the best thing to do if we did not received 1099C instead we just received 1099A? How can the lender forgive us from our debt?
      0 Votes

    • 35x35
      Feb, 2012
      Bill
      The 1099-A is simply a notice from your creditor to the IRS that you abandoned the property. Receiving a 1099-A does not mean that the debt is forgiven. If the lender sends you a 1099-C, then the debt is forgiven and you must account for it on your tax return.
      0 Votes

    • 35x35
      Feb, 2012
      Howell
      So if we did not received the 1099C, is that means that the lender will still be chasing us to pay?
      1 Votes

    • 35x35
      Feb, 2012
      Bill
      A common misconception is that if a creditor issues a 1099-C that it can no longer pursue the debt. In most cases the creditor will not pursue the debt, but, if it chooses to it can. At that point, it can notify the IRS that it is revoking the 1099-C and pursue the debt.

      In your case, all you can do is wait and see if there is a 1099-C forthcoming. If it is, make sure to properly account for it on your tax return.
      0 Votes