There are many different forms of 1099 used as “information returns” for the IRS. These tables report the various types of income you may have received during the year. Here’s why you might get a Form 1099-A and what you need to do with it.
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What is Form 1099-A?
Form 1099-A, Acquisition or Relinquishment of Secured Property, is an informational form for reporting property foreclosures. You may receive this form if your mortgage lender has foreclosed on your property and foreclosed some or all of your mortgage, or sold your property in a short sale. If you have more than one mortgage on a foreclosed property, you can expect to receive a separate 1099-A form from each lender.
Since debt cancellations are considered income, you will need to report income to the IRS using the information on Form 1099-A. In other words, if you borrow money (mortgage from a lender) to buy a home, but at some point, you are no longer able to pay, the IRS considers your unpaid money as income. Depending on your situation, this income may be taxable.
When should I use Form 1099-A?
Your mortgage lender will complete and file a Form 1099-A with the IRS. They will also send a copy to all borrowers listed on that foreclosure loan. Each borrower must then report the information on the form on their personal tax return.
The lender should send you a copy of Form 1099-A by January 31 of the year following foreclosure. The lender must also send a copy of the form to the IRS by February 28 of the same year.
What do I do with the information reported on Form 1099-A?
Even without a traditional sale, you still need to report the “sale price” of the property on Schedule D of Form 1040, which is used to report capital gains and losses. You will also report this amount on line 7 of Form 1040. For the sale price, you’ll use the outstanding loan balance or fair market value. If you are not responsible for the remaining debt, use fair market value. Fair market value can be found in Box 4 of Form 1099-A.
You will need to check Column 5 of Form 1099-A to see if you are personally responsible for the repayment. If you check “Yes” in that box, the lender can legally ask you to collect any outstanding balance that they cannot recover by selling the property. In this case, you would enter the outstanding loan balance as the “sale price”. The outstanding loan balance can be found in Box 2 of your Form 1099-A.
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What is Form 1099-C?
For a foreclosed property, you may receive both Forms 1099-A and 1099-C.
If the lender has foreclosed on any remaining mortgage debt, they will send you a 1099-C.
For example, if you borrowed $100,000 and defaulted on your mortgage after only paying back $80,000, the remaining balance would be $20,000. If your lender determines that you cannot repay the remainder, they may cancel the debt amount. In this case, the $20,000 debt cancelled will be reported on Form 1099-C because it is considered income and, depending on your situation, may be taxable.
If you are insolvent when you cancel your debt, some or all of your debt may not be taxable. Bankruptcy occurs when your total debt exceeds the fair market value of your total assets.
You may also receive a Form 1099-C if you settle your debt with another lender, such as a credit card company. If the lender forgives any amount of the loan, that amount may be taxable income. If the forgiven debt is at your primary residence, then you may be eligible to exclude that amount from your income.
What does Form 1099-A mean for my taxes?
In addition to reporting your foreclosure sale price on Schedule D of Form 1040, receiving Form 1099-A may mean that you have capital gains that will be taxed. However, this is unlikely. The IRS generally does not require taxpayers to report capital gains on foreclosed property as long as they meet both of the following requirements:
You have lived in the home and used it as your primary residence for at least two of the past five years. From a foreclosure situation, you earn or gain less than $250,000 if filing single and less than $500,000 if filing jointly.
To calculate your capital gain, subtract the sale price from the purchase price.
The 1099-A form is just one of many 1099 forms you may receive in the mail. After reporting the information in your 1099-A, you should keep a copy for your records. If you believe the information on the form is inaccurate, you will need to contact the lender to correct it.
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