I have a client who has received a 1099-A (Aquisition of Secured Property)

I have never seen this form before so I'm unsure how exactly to treat it.

Should I treat this as a 1099-C or ignore it until such time that a 1099-C is issued?

My client purchased a home (in Pennsylvania) as her primary residence in August of 2007.

The purchase price was $159,000

Details from the 1099-A she has received are as follows:

Box 1 (Date of Lender's Aquisition) 08/07/2009

Box 2 (Balance of Principal outstanding) $143,100

Box 3 BLANK

Box 4 (Fair market value of Property) $170,069

Box 5 (Was borrower personally liable for repayment) YES

As mentioned before, I've never seen this form before and I'm unsure how to treat it.

I have spoken to a few colleagues who are also stumped.

Can someone out there tell me how to treat this or what to do?

My client makes less than $30,000 and is a single mother of two.

I do not want to do anything to negate EIC which she normally receives.

Any suggestions or advice would help a lot.

Thanks!

asked 05 Feb '10, 19:02

TaxQueries's gravatar image

TaxQueries ♦♦
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Publication 4681 give a discussion of abandoned property. She does not have income until the debt is forgiven. The lender probably has not determined the COD income by 12/31 or there was not any. If they sold or sell the property for at least the loan balance she will not get a 1099-C. They could sell it for more than the loan balance but the foreclosure fees & closing costs almost always eat up the additional funds. Right now she has a nondeductible loss of $15,900. I would report the loss on Schedule D showing no taxable loss on personal use property and attach a statement to the return disclosing all the facts to head off any IRS correspondence.

In any event, and since the loan is recourse, the difference between the "FMV" and the mortgage balance should be carefully and closely anlayzed and monitored with regards to the source and use of proceeds from the time of abandonment until the ultimate sale. This is one area that is prime and ripe for fraud, waste, and abuse on the part of creditors, potential straw borrowers, and equity skimmers. (As a CFE, I would be delighted to "lend" any assistance that I could.)

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answered 06 Feb '10, 19:02

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PStampley
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edited 01 Apr '10, 19:18

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Brent Berkman
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IRS instructions say if Box 4 is less than Box 2 AND the debt was canceled then you have Cancellation Debt Income - which may be excluded on either on Form 982 or under IRC 108(a).

In YOUR case, Box 4 is greater than Box 2. I believe that this is treated as a SALE of the property. After all, the lender got a house worth $170,069 but only paid $143,100 for it.

I believe you treat this as a sale. I say this because the 1099-A is issued for an ABANDONED property. Hence, your client may have to report a sale at $170,069 with a basis of $159,000 and a taxable gain of $11,069. If this is correct, the gain may not be excludable because the FMV of the property exceeded the principal owed.

BUT the big caveat here is that I'd have to go over everything in order to be sure.

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answered 08 Feb '10, 17:53

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EAgent
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If your client got a 1099-A, then the lender is not supposed to issue a 1099-C. See IRS pubs. 544 and 4681. I would be very careful regarding the FMV on the 1099. This may be the lender's foreclosure bid, which is fine for the 1099, but may not be related to real FMV. If the lender resold the property soon afterward, I'd say that is the real FMV. The only thing I can't find yet is why the 1099-A instructions tell the lender to check the box for personal liability (recourse debt) if the property is abandoned. That has nothing to do with recourse debt under state law.

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answered 18 Feb '10, 02:44

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duane cpa
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I do have some thing similar to this 1099-A, for the Federal return I can find the instruction and worksheet schedual, but what I do not know how to treat is the State return, I can't treat (white it out) I Live in state California If anyone has any Idea please help thank you tsujntug

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answered 23 Feb '10, 20:38

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tsujntug
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I have the same circumstances where the FMV in box 4 is higher than the principal outstanding in box 2. However, 12 weeks later, and before the end of the calendar year, the lender sold the property for $4,500 less than the principal outstanding. Does this affect me at all? Or is the FMV considered my selling price?

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answered 01 Apr '10, 13:30

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Anne Marie
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Anne, if this question doesn't completely address your situation you might want to click the "Ask Question" button and discribe your own unique situation.

(01 Apr '10, 17:00) TaxQueries ♦♦

yea i am in New Jersey and have a similar issue. the cheapest way to resolve it is report it on your tax return and in the other income section dispute it call it 0 income and see note on line 21. and on line 21 say say client was not personally liable for it the debt was not valid or what ever legitimate excuse you can come up with. and if your and your client are willing re affirm the debt write a letter to the bank that we all know will be ignored saying you reaffirm the debt and say on lien 21 debt was re affirmed. Given this current environment the odds are very high the IRS will accept it and be done. The other option I can think of a Nuclear option is re affirm the debt tell the Irs the debt was re affirmed then file a bankruptcy and discharge it the law is clear they cannot 1099 you for that.

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answered 01 Feb '12, 12:42

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troy
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I did bankruptcy chapter 7, three tears ago, i included my primary residence, i was living in this house until september 2012, i give the house back to the bank in octuber 2012. I recived from the bank 1099-A form. The box#2 is $239K, and the box# 4 is $316K. This means that I need to pay to the IRS? Please I need your help

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answered 02 Feb '13, 03:34

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Asked: 05 Feb '10, 19:02

Seen: 18,393 times

Last updated: 02 Feb '13, 03:34