1099a Answers found in Search

[Possi]

I just have to take a minute and say again how much I appreciate this professional board.

I had questions about abandoned rental property and did a search here. The answer was very clear and concise, and got a bigger refund for my client.

Thank you thank you thank you....

My question was whether or not this was a business loss. A December 2007 thread resulted in this offering:

(quote)
Default Natp
I found this Q & A on the NATP website:
Q: I received a Form 1099-A, Acquisition or Abandonment of Property. What do I do with it?
A: Receipt of Form 1099-A means you owed a lender some money and they have taken the identified property in satisfaction of some or all of the debt. For tax purposes, you are deemed to have “sold” the property to the lender and should report the “sale” according to the normal rules (Form 4797 for business or rental property, Schedule D for personal use property, etc.). You may have a taxable gain, or if business use property, a deductible loss.
To determine the “sales price”, you must look at Box 5 of the Form 1099-A. If Box 5 is marked “Yes”, you are personally liable for the debt and your “sale price” is the smaller of Box 2, Debt Outstanding”, or Box 4, Fair Market Value of the property taken. If Box 4 is the smaller amount, you still owe the difference between Box 2 and Box 4. You will eventually have to pay this difference unless it is later forgiven (which triggers debt forgiveness income).

If Box 5 of Form 1099-A is marked “No”, you are not personally liable for the debt and your “sale price” is the amount shown in Box 2, Debt Outstanding. Any amount in Box 4 is ignored.
(quote ends)

[Gary]

IRS was correct?

On Feb 28, I posted a response I received from the IRS. It said, in part

"This 1099A is for a foreclosure of your personal home that was not used for business purposes,then we can continue:Box 2 is the sales price that is reported on SCH D,the date of sales is box 1 of 1099A,the date you bought the house is the acquired date,the cost is the adjusted basis.If there is a loss whether it be long or short term does not matter because you can not take a loss on personal property.Therefore put a ZERO on column F of SCH D.If there is a gain,long term,you will be able to exclude if you meet the sale of home exclusion using section 121 per Pub 523."

I made the comment that the responder didn't know what he was talking about because he said Box 2 was the sale price. If I understand your post, the IRS person was correct. I hope so, because box 2 is less than her basis in the house (the fair market value is not).

[Possi]

Box 2

I believe the responder meant that Box 2 is CONSIDERED FOR TAX PURPOSES the sale price. If it was a foreclosure, there was no "sale."

Does that help?

[Gary]

Does that mean

that the gain is the adjusted basis minus the Box 2 amount?

[Possi]

Personal or Business property?

On Feb 28, I posted a response I received from the IRS. It said, in part

"This 1099A is for a foreclosure of your personal home that was not used for business purposes,then we can continue:Box 2 is the sales price that is reported on SCH D,the date of sales is box 1 of 1099A,the date you bought the house is the acquired date,the cost is the adjusted basis.If there is a loss whether it be long or short term does not matter because you can not take a loss on personal property.Therefore put a ZERO on column F of SCH D.If there is a gain,long term,you will be able to exclude if you meet the sale of home exclusion using section 121 per Pub 523."

I made the comment that the responder didn't know what he was talking about because he said Box 2 was the sale price. If I understand your post, the IRS person was correct. I hope so, because box 2 is less than her basis in the house (the fair market value is not).

I do not know about your client. I don't know if it was business, rental, personal property.

For mine, it was business (rental) property, so the loss was allowed. They abandoned property that was worth more than they owed on it. I followed the instructions precisely as written, including the last part about whether or not they were responsible for the debt.

Helpful?

[Gary]

Gain

It was a personal home (actually lived in by her ex, that died). The adjusted basis was larger than Box 2 (but smaller than the Fair market Value). Thus there would be a gain. This gain is less than what I thought it should be --- FMV minus adjusted basis. Thus, I hope that Box 2 being considered the sale price benefits my client. It still is not fair, since the divorce decree said that the husband got the house, and my client's name should have been removed from the mortgage. But that is history. It would be nice if innocent spouse applied, but she was not married when the 1099-A was issued. I think the IRS should take into account the facts and circumstances, but I got nowhere talking to them.

[Possi]

confusing

Sometimes I wonder how anyone figures this out. Mine was easy with the instructions I originally posted. Yours sounds more convoluted, and I am clearly not qualified to give you any answers.

I makes sense that if the abandoned property was worth MORE than you owed on it, you have a loss and not a gain. Personal prop = no loss... Business = loss...

But it sounds like you have another element involved and that is basis.

Have you completed the return? What did you finally do?

[Davc]

Sometimes I wonder how anyone figures this out. Mine was easy with the instructions I originally posted. Yours sounds more convoluted, and I am clearly not qualified to give you any answers.

I makes sense that if the abandoned property was worth MORE than you owed on it, you have a loss and not a gain. Personal prop = no loss... Business = loss...

But it sounds like you have another element involved and that is basis.

Have you completed the return? What did you finally do?

Basis is always an element in calculating gain or loss.

[Possi]

i know...

Basis is always an element in calculating gain or loss.

I know it is.... that isn't exactly what I meant..... My issue was business property and I knew my basis and depreciation recapture and all the other issues involved. The answer was so crystal clear to me for my own client.

I don't think I'm understanding Gary's situation completely. The basis he is dealing with is different from my rental property. I can't quite lay out his equation the way I could so easily do mine.

That's all I meant....

[Gary]

Clarification

I really appreciate all your responses, so let me try to clarify the situation, and get your input.

Many years ago, my client and her husband bought a personal residence for $77,000. they were divorced approximately 5 years ago, and the divorce decree said that he was to get the house. He never took her name off the mortgage. He died two years ago, and the in 2008 both the deceased husband and my client received a 1099-A for the same identical amount. Box 2 is $44,288 and Box 4, FMV is $184,000. It is a non-recourse loan, so there is no income from cancellation of debt. My question (not including whether she is really responsible for none, all or half of the capital gain, if any) is this. It was my understanding that capital gain/loss is the difference between FMV(box 4) and the adjusted basis, ie. gain = 184,000 - 77,000.

The response from the IRS is that Box 2 is the sale price. Possi also said

"I believe the responder meant that Box 2 is CONSIDERED FOR TAX PURPOSES the sale price. If it was a foreclosure, there was no "sale." "
Thus if $44,288 is tha sale price and $77,000 is the basis, then there is a loss, not again and my client is home free.

I hope the second scenario is correct. Please give me your thoughts.

[David1980]

The only reason the FMV would ever be the sell price is if 1) the FMV is less than the loan outstanding, and the difference is recognized as CoD income or 2) the taxpayer received proceeds from the foreclosure for the difference.

Otherwise the sell price would be the loan outstanding plus any proceeds received from the foreclosure.

There is a worksheet to calculate the selling price in Publication 4681 chapter 2. See Table 1-1.

[WhiteOleander]

There is no cancellation of debt at this time. The sales price of the property is box 4, FMV. It is more than box 2, the outstanding principal due.

A 1099A is reporting the foreclosure on a piece of property. Whether it be real or personal property. It is considered a sale. The sales price is box 4, FMV. No 1099C has been issued. A lending company has the right to not forgive a debt and continue collection efforts. Then at a later date, they might forgive the debt. That's why the 1099C can be issued several years after the property was foreclosed on. In that tax year, it is decided if the debt has to be included in the income.

In the scenario you have posted, the sales price covers the outstanding debt. So, I would not expect a COD. Unless there are alot of fees or something not being said. Your t/p needs to show the sale of the property on Sch D. She will have to provide you with the info for the basis. If she can still qualify for the Sec. 121 exclusion on the sale of a residence, I would file it that way and she will not have to pay on the gain, if indeed she has a gain. If it is a loss, it is personal, and no loss can be taken.

As far as her not being taken off the mortgage, that is her fault. I guarantee you, If I were supposed to come off a mortgage, I would make sure it happened. She also needs to find out where the proceeds from this sale went. If there were any, it would appear they would be hers.

[Jesse]

I don't know why this is so confusing - perhaps lack of sleep...

I have a 1099-A for a home and the taxpayer according to box 5 is personally liable.

The outstanding balance, box 2 is just over $70,000.
The FMV, box 4 is $45,000.
The basis in the home is $52,000.

If the basis of the home is more than the FMV I have a loss.

But I am thrown by the outstanding balance being more than the basis, as they refinanced and din not use all proceeds for purchase or improvement of the home. Can I use the $70,000 as the sales price and use the section 121 exclusion?

Can the mortgage company come back in a future year and issue a 1099C?

[David1980]

Table 1-1. Worksheet for Foreclosures and Repossessions
Part 1. Figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Complete this part only if you were personally liable for the debt. Otherwise, go to Part 2.
1. Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property
2. Enter the fair market value of the transferred property
3. Ordinary income from the cancellation of debt upon foreclosure or repossession.* Subtract line 2 from line 1. If less than zero, enter zero. Next, go to Part 2
Part 2. Figure your gain or loss from foreclosure or repossession.
4. If you completed Part 1, enter the smaller of line 1 or line 2. If you did not complete Part 1, enter the amount of outstanding debt immediately before the transfer of property
5. Enter any proceeds you received from the foreclosure sale
6. Add line 4 and line 5
7. Enter the adjusted basis of the transferred property
8. Gain or loss from foreclosure or repossession. Subtract line 7 from line 6
* The income may not be taxable. See Chapter 1, Canceled Debts, for more details.
Amount realized on a nonrecourse debt. If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer.

So following the worksheet here for your facts Jesse, assuming that it is recourse debt.

Part 1.
1. $70,000
2. $45,000
3. $25,000 COD income (depending on whether it's taxable. This could be issued on a 1099-C in future year or maybe there's an exception and 1099-C will never be issued.)
Part 2.
4. $45,000
5. $$ ?? (did the taxpayer get any money off the foreclosure? I DOUBT IT!)
6. $45,000
7. $52,000
8. ($7,000)

Looks like a possible $25,000 COD and ($7,000) as loss on sale of property. So they may receive a 1099-C in a future year at which point they'd have taxable income (at least for the part of the refinance that was not used for purchase or improvement of the home, rest could probably be exlcuded as principal residence indebtedness. Or maybe the whole amount could be excluded as insolvent.)

Now if it's non-recourse debt,

Amount realized on a nonrecourse debt. If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer.

Then there would never be any COD and sales price is full amount of outstanding debt immediately before sell. $70,000 - $52,000 = $18,000 capital gain.

[NotEasy]

I just have to take a minute and say again how much I appreciate this professional board.

I had questions about abandoned rental property and did a search here. The answer was very clear and concise, and got a bigger refund for my client.

Thank you thank you thank you....

My question was whether or not this was a business loss. A December 2007 thread resulted in this offering:

(quote)
Default Natp
I found this Q & A on the NATP website:
Q: I received a Form 1099-A, Acquisition or Abandonment of Property. What do I do with it?
A: Receipt of Form 1099-A means you owed a lender some money and they have taken the identified property in satisfaction of some or all of the debt. For tax purposes, you are deemed to have “sold” the property to the lender and should report the “sale” according to the normal rules (Form 4797 for business or rental property, Schedule D for personal use property, etc.). You may have a taxable gain, or if business use property, a deductible loss.
To determine the “sales price”, you must look at Box 5 of the Form 1099-A. If Box 5 is marked “Yes”, you are personally liable for the debt and your “sale price” is the smaller of Box 2, Debt Outstanding”, or Box 4, Fair Market Value of the property taken. If Box 4 is the smaller amount, you still owe the difference between Box 2 and Box 4. You will eventually have to pay this difference unless it is later forgiven (which triggers debt forgiveness income).

If Box 5 of Form 1099-A is marked “No”, you are not personally liable for the debt and your “sale price” is the amount shown in Box 2, Debt Outstanding. Any amount in Box 4 is ignored.
(quote ends)

After you have used the information on the 1099-A to report the abandonment as a sale, do you still have to worry about the forgiveness of the outstanding loan as income?