Tax Experts! Form 1099 A (acquisition and abandonment of real estate property)?

Question

If you file chapter 7 and you are not able to pay for your home, bank take home back and send you a 1099 A. Market Value of home at time of abandonment is $80,000, Mortgage balance $100,000. Do you have a taxable canceled debt or is it not taxable since you are insolvent? Thanks

Answer 1

Ok I have been asked many many times on how to show a 1099A and 1099C. This is the steps on what to do…….

The 1099-A just says you abandoned the property and you need to report the "sale of home" on schedule D. Depending on whether it said you were personally liable or not for the remaining balance will dictate what number you use as the "sales" price. “If Liable is checked” use the “debt canceled” if “Not Liable is checked” then you use the “FMV”.

If the debt that was cancelled is more than what the house was worth, then you may have income from debt cancellation (don’t worry because if you lived in the home for more than two years you qualify for the exclusion). The date of sale will be the date that appears on the 1099-A form.



For example, if the house was worth $100,000 and the debt cancellation was $210,000 and you did not live in the home for two years, then you may have income from debt cancellation of $110,000. If you were insolvent (your total debts exceeds your total assets) on the date of the debt cancellation, then you do not need to recognize the $110,000 as income use form 982. On Schedule D, you would recognize the $210,000 as the sales proceeds on the house because that is what the bank took the house for, and you would need to enter the purchase price minus any deprecation if it was a rental as your cost basis in the property. You cannot recognize a loss on the sale of property unless the property was investment or rental property.

The 1099C is usually the smaller amount and the way you report this is by using the debt canceled as income on form 1040 line 21. This is due to a second on the home by pulling cash or a down payment and is from another bank or could be from the same bank. The way to see if you are insolvent for this amount you must put the amount of debt canceled on form 982 and the FMV. Example, the liability is 300,000 and the FMV is 200,000 than the amount canceled is 100,000. You must total all your assets and debt on that form use a scratch pad if needed. If your assets are more than your debt then you will not qualify but if your debt is more than your asset then you will not report that amount on line 21 of the 1040 and file 982 to the IRS for insolvent. Hope this helped.

Answer 2

Like most things the answer is a little complex. If you purchased the house and deferred recognition of gain, and the gross proceeds were less than 200,000 then you are ok. If you have not previously deferred gains when you purchased the house, and have not reduced basis from a casualty or depreciation from a home office or renting it out for a time, the answer do not report it, but expect to get a letter asking about the basis and computation of Gain. If you claimed Office in Home or depreciation that portion of the proceeds are taxed as ordinary income. If you deferred gain ( under the old law) some of the gain may be taxed at a capital gain rate. With all those caveats, if you purchased it for cash and did not rent it out or claim office in home, do not report it. You can go to www.irs.Gov and review Publication 523 Selling your home. Read pages 1-3 and 20.

Answer 3

Form 1099-a

Answer 4

By the way, you do NOT have cancelled *yet*--you haven't gotten the 1099-C for the $20,000.



When you do get it (which may be next year), you then deal with it. It's not income yet, you use form 982, but if you still have assets and have to reduce your "tax attributes" it can cause you to have taxable income in the future.



See IRS pub 4681.

Answer 5

A taxpayer is insolvent when his or her total liabilities exceed his or her total assets. The forgiven debt may be excluded as income under the "insolvency" exclusion. Normally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. Form 982 is used to figure the insolvency.



Insolvency exclusion. You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. Determine your liabilities and the fair market value of your assets immediately before the cancellation of your debt to determine whether or not you are insolvent and the amount by which you are insolvent.



Exclude from your gross income debt canceled when you are insolvent, but only up to the amount by which you are insolvent. However, you must use the amount excluded to reduce certain tax attributes, as explained later under Reduction of Tax Attributes.



Example.



$4000 of the Simpson Corporation's liabilities are cancelled outside bankruptcy. Immediately before the cancellation, the Simpson Corporation's liabilities totaled $21,000 and the fair market value of its assets was $17,500. Because its liabilities were more than its assets, it was insolvent. The amount of the insolvency was $3,500 ($21,000 — $17,500).









Christine- EA Master Tax Adviser Check out web page

http://www.hrblock.com/tax_professionals/christine_wilkins.html



**This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you have provided

Answer 6

1. You may have to report sale on Schedule D (Form 1040).



2. Any debt canceled is your income if it was recourse liability.







3. If you lived in the house for two years and owned it for two years in last 5-years, you may be eligible to exclude gain of up to $250,000. Read: http://taxipay.blogspot.com/2008/03/profit-from-sale-of-your-home.html



4. The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt of recourse loan on their principal residence. Read about foreclosure or repossession http://taxipay.blogspot.com/2008/08/foreclosure-or-repossession-of-main.html