Greetings!

Question

1

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!

flag	asked Feb 5 at 19:02 TaxQueries♦♦ 590●3●11

PStampley · Answer 1 · 2010-02-06 19:02:01Z UTC

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.

EAgent · Answer 2 · 2010-02-08 17:53:19Z UTC

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.

duane cpa · Answer 3 · 2010-02-18 02:44:54Z UTC

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.

tsujntug · Answer 4 · 2010-02-23 20:38:41Z UTC

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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