Foreclosure and Form 1099-A

[NotEasy]

Another question on this hot tax topic.

Taxpayer's former home got foreclosed in 2008 and he received a Form 1099-A. And on this 1099-A, the amount in box 4 (Fair market value of property) is more than the amount in box 2 (Balance of principal outstanding). So if the lender can sell the property for more than the 'balance of principal outstanding' in the future, is it possible that they will give the excessive amount to the taxpayer? Let's assume that this really happens and the taxpayer receive $10,000 in 2010 because of it, how should the $10,000 be reported on the taxpayer's 2010 tax return? Or perhaps the taxpayer has to amend his 2008 tax return because of the $10,000?

[AZ-Tax]

1099-A generated ln 21 form 1040 cancelled debt income of $77K

Wow, is that possible.

1099-A

Box 2: $252K
Box 4: $175K
Box 5: Yes

Woooow. What happen to that debt forgiveness the President signed into law?

[NotEasy]

Wow, is that possible.

1099-A

Box 2: $252K
Box 4: $175K
Box 5: Yes

Woooow. What happen to that debt forgiveness the President signed into law?

???

Are you referring to the case of my client? In his case, it's the amount in box 4 larger than the amount in box 2. So it's the FMV of the property more than the outstanding loan amount.

[AZ-Tax]

NotEasy

???

Are you referring to the case of my client? In his case, it's the amount in box 4 larger than the amount in box 2. So it's the FMV of the property more than the outstanding loan amount.

Nope, its my client. So is this possible?

[NotEasy]

Nope, its my client. So is this possible?

Well, I am not an expert in this area but I did read a lot about what the experts in this forum have said in this topic. Your case seems to be possible to me. The outstanding loan is bigger than the FMV so the lender held the taxpayer liable for the difference. Why would you think it is impossible?

Also, no offense, but you should start another thread for your own question. I think I will have less chance to get an answer if there are questions (even though related) from other posters in the same thread.

[David1980]

Another question on this hot tax topic.

Taxpayer's former home got foreclosed in 2008 and he received a Form 1099-A. And on this 1099-A, the amount in box 4 (Fair market value of property) is more than the amount in box 2 (Balance of principal outstanding). So if the lender can sell the property for more than the 'balance of principal outstanding' in the future, is it possible that they will give the excessive amount to the taxpayer? Let's assume that this really happens and the taxpayer receive $10,000 in 2010 because of it, how should the $10,000 be reported on the taxpayer's 2010 tax return? Or perhaps the taxpayer has to amend his 2008 tax return because of the $10,000?

Yes, it is possible. Depending on the type of foreclosure and the foreclosure law of the state the taxpayer may be entitled to the difference between what they owed & what the bank sells it for. Or, they may be entitled to the difference less attorney's fees. Or other fees. So the taxpayer may be entitled to anything from $0 to the full difference between loan outstanding & price home sold at.

This is supposed to be accounted for in the sale of the property. Table 1-1 of Publication 4681 has the sale price as the smaller of FMV or loan outstanding + proceeds received. So if the home was foreclosed & sold all in the same year it would be simple.

When the proceeds are received in the following year, I'm not sure how to report it. Do you amend the prior year to increase the sales price or do you include the gain on the year the proceeds from sale were received?

[NotEasy]

Yes, it is possible. Depending on the type of foreclosure and the foreclosure law of the state the taxpayer may be entitled to the difference between what they owed & what the bank sells it for. Or, they may be entitled to the difference less attorney's fees. Or other fees. So the taxpayer may be entitled to anything from $0 to the full difference between loan outstanding & price home sold at.

This is supposed to be accounted for in the sale of the property. Table 1-1 of Publication 4681 has the sale price as the smaller of FMV or loan outstanding + proceeds received. So if the home was foreclosed & sold all in the same year it would be simple.

When the proceeds are received in the following year, I'm not sure how to report it. Do you amend the prior year to increase the sales price or do you include the gain on the year the proceeds from sale were received?

If the proceeds have been received in 2008, there should be no tax consequence because even if the taxpayer has to add the extra proceeds from the lender to the outstanding balance to get the 'sale price', the total will still be much smaller than his original cost of the property. So he will still have a loss. And how big/small is the loss is inconsequential because it is personal loss and non-deductible anyway.

But just like the question that you asked at the end of your post, what happens if the proceeds are received in later years?