Bill's Answer:
Answered by
Mark Cappel
Generally speaking, the Internal Revenue Service (IRS) treats a foreclosure as a home sale, with any forgiven debt treated as regular income. Reporting a gain or a loss on the sale/foreclosure will depend on whether you are personally liable for the debt (which is normally determined by state law where the property is located). There are exemptions and state laws to take into consideration as well, so you should consult with a qualified tax adviser or tax attorney in your state and find out how they apply to your specific situation.
I will provide you with resources that should help educate you on foreclosure, taxes, and instructions on 1099-A forms. This may help you to head into your meeting with your tax advisor or attorney with some understanding of the basics involved.
- The IRS Web site contains the FAQ Home Foreclosure and Debt Cancellation. This document contains examples and instructions for completing your tax forms if you experienced a foreclosure.
- See the IRS document explaining The Mortgage Forgiveness Debt Relief Act and Debt Cancellation, which allows taxpayers to exclude income from the discharge of debt on their principal residence.
- See the IRS Form Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness.
- See the IRS Publication 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments.
- See the IRS document Instructions for Forms 1099-A and 1099-C to learn more information about the 1099-A.
I hope this information helps you Find. Learn & Save.
Best,
Bill
Debbie K.
Alta Loma, CA | October 16, 2011
Alta Loma, CA | October 16, 2011
I had a rental property in CA go to foreclosure this year. Can you tell me how long the bank has to send the 1099? Does it have to be sent to you in the year the property was foreclosed upon? Or do they have a set number of years to send?
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Bills.com
October 17, 2011
October 17, 2011
The rules regarding 1099 disclosures are full of pitfalls for even the most savvy taxpayer. In the original answer above, I mention two documents that are crucial for you. The first, IRS Form Form 982, you must file promptly even if the lender issues a 1099 after you file your tax return. Read IRS Publication 4681 to learn more.
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David C.
Jackson Twp, OH | April 13, 2011
Jackson Twp, OH | April 13, 2011
Help... My home was foreclosed in South Carolina. I just received a 1099A in the mail from the lender. I see the Fair Market Value as $245,000.00 and the amount owed is $219,000.00 Does this mean that I will owe taxes on the difference? With the housing market as it is, homes are selling in that area for $190,000.00
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Bills.com
April 13, 2011
April 13, 2011
See the IRS Instructions for Forms 1099-A and 1099-C and IRS Form 982 to learn how to interpret and use the information on a 1099-A or 1099-C.
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Robert N.
San Francisco, CA | April 18, 2011
San Francisco, CA | April 18, 2011
Does anyone know if the bank can still come after me for the deficiency on the debt if they file a 1099-A or do they have to file a 1099-C? I only received a 1099-A and am wondering if i am still on the hook with the bank (foreclosure) Tnanks-
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Bills.com
April 18, 2011
April 18, 2011
Unfortunately, the issuance of a 1099-A or -C does not prevent the creditor from pursuing the debtor. In other words, even though a 1099-C includes the words "debt cancellation" in its title, it does not mean the debt is canceled or forgiven legally. The lender may, indeed, forget about the debt. The lender may, on the other hand, sell the collection account to a collection agent, which has the right to collect the entire balance of the debt.
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Robert N.
San Francisco, CA | April 18, 2011
San Francisco, CA | April 18, 2011
Thanks for your help; an attorney had told me they cant do both (collect the debt AND issue 1099). He could be wrong i guess?
thanks again-
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Bills.com
April 18, 2011
April 18, 2011
Ask your lawyer to review In re Zilka, 407 B.R. 684, 689 (Bankr. W.D. Pa. 2009) and Amtrust Bank v. Fossett, No. 1 CA-CV 08-0840 n. 2 (Ariz. Court of Appeals, Div. 1, Dept. A 2009). Both of these cases are from federal bankruptcy court, which may or may not be relevant in your state. However, the language in both cases regarding the 1099 is pretty clear to me how two federal judges interpret the intent of a 1099 issuance.
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Robert N.
San Francisco, CA | April 18, 2011
San Francisco, CA | April 18, 2011
Thanks again- one more question:
-a 1099 is issued because theoretically i am gaining income in the form of forgiven debt, so if the bank can still come after me then its not really forgiven and i can pay tax on money i may need to pay to the bank anyway?
robert
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Bills.com
April 19, 2011
April 19, 2011
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.
Hypothetically, let us say it pursues you for the full balance, which you, having just won the lottery and feeling generous, pay in full. The financial institution will need to file an amended tax return, as will you, to correct the 1099-C issue.
Hypothetically, let us say it pursues you for the full balance, which you, having just won the lottery and feeling generous, pay in full. The financial institution will need to file an amended tax return, as will you, to correct the 1099-C issue.
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Robert N.
San Francisco, CA | April 19, 2011
San Francisco, CA | April 19, 2011
got it- thanks!
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Mame P.
Baltimore, MD | February 19, 2011
Baltimore, MD | February 19, 2011
Help ! My mother had a REVERSE MTG. She passed away in 2008. Couldn't sell home because of such bad condition, so us children deeded the property back to HUD in 2010. Just got a form 1099-A (Acquistion OR Abandonment of Secured Property) Box 5 denotes she is not personally liable for repayment of the debt. Box 2 has the original loan amount (not the amount with accrued interest over 15 yrs.) Box 4 is blank as to Market Value of Property.
I don't know what to do with this form since IRS also has a copy. Is there a tax form that has to be filed or something?
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Bills.com
February 21, 2011
February 21, 2011
See the IRS Instructions for Forms 1099-A and 1099-C and in particular IRS Form 982 to learn how to file a tax return with a 1099-C.
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Mary P.
Baltimore, MD | February 21, 2011
Baltimore, MD | February 21, 2011
I will check out those publications, but we did not get a 1099-C (Cancellation of Debt), just the 1099-A.
Thanks
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Bills.com
February 21, 2011
February 21, 2011
My apologies for my earlier incorrect response, and thank you for following up. A 1099-A and 1099-C are similar but require different responses by taxpayers. As I read the tax code, the taxpayer need not file anything with their tax return if they receive a 1099-A because a 1099-A is an informational notice. However, I urge you to consult with a tax preparer to verify my interpretation of the law, and read IRS Publication 4681 for more information.
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Mame P.
Baltimore, MD | February 21, 2011
Baltimore, MD | February 21, 2011
thanks...I see that a 1099-A and a 1099-C are two different things. I read the publications you mentioned and they seemed geared to be instructions to the Lender/Financial institution who sent the 1099-A. I will check out the other publication you mentioned and perhaps consult with an accountant....I too feel that the 1099 -A is "informational" only. thanks
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Bills.com
September 10, 2010
September 10, 2010
All state laws on this matter differ. I cannot offer an observation without knowing your state. Consult with an attorney in your state who has experience in real estate law. If your assumption is verified by your attorney, this will be money well spent. If you are wrong, then you were even wiser to seek counsel because your attorney will advise you of your rights and liabilities.
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Anna4 .
September 08, 2010
September 08, 2010
I live in a recourse state. My State has a Full Bid Credit Rule. My bank bid the full price of my loan balance at my sheriff sale. It is my understanding that the price a home sells for at auction is its FMV. There fore there should be no forgiveness of debt and no capital gains realized on my foreclosure andthere should be no tax liablilty. Am I correct?
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Bills.com
January 27, 2010
January 27, 2010
See the IRS document Instructions for Forms 1099-A and 1099-C to learn more information about completing a 1099-A. See also the examples in the IRS FAQ Home Foreclosure and Debt Cancellation.
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Steven G.
January 27, 2010
January 27, 2010
I rcieved a 1099-a and the loan amount was 122,000 and the value at the time was 60,000 what should I do and do I have to claim the amount..
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