1099-A vs 1099-C

[AZ-Tax]

Would a TP who short sold their home recieve a 1099-C opposed to a 1099-A?
I was under the impression 1099-C was only used for CC debt forgiveness.

[DaveinTexas]

Would a TP who short sold their home recieve a 1099-C opposed to a 1099-A?
I was under the impression 1099-C was only used for CC debt forgiveness.

A 1099 C may follow. I haven't seen it happen. Usually the debtor receives the 1099-A with the FMV of home, etc.

I pulled this information from the instructions for the 1099A and C:
Coordination With Form 1099-C

If, in the same calendar year, you cancel a debt in connection with a foreclosure or abandonment of secured property, it is not necessary to file both Form 1099-A and Form 1099-C, Cancellation of Debt, for the same debtor. You may file Form 1099-C only. You will meet your Form 1099-A filing requirement for the debtor by completing boxes 4, 5, and 7 on Form 1099-C. However, if you file both Forms 1099-A and 1099-C, do not complete boxes 4, 5, and 7 on Form 1099-C. See the instructions for Form 1099-C on page 2.

It will still be necessary to determine the FMV of the home and the balance of the mortgage at time of foreclosure.

I hope that helps.

[gkaiseril]

I believe the 1099-A is for the secured, mortgaged, portion of the debt and the 1099-C is for the unsecured loan amount, home equity loan.

[David1980]

Well, reading the instructions for 1099-c/1099-a, it seems that 1099-c is required when there is cancellation of debt regardless of the kind of debt or if it's a 1st, 2nd, 3rd, etc... mortage.

In which case you would never have to report cancellation of debt income or complete Form 982 if only 1099-A is received, because without the 1099-c it would indicate no debt was cancelled. (So perhaps the debt is $200k but the home is valued at $250k and they take the home to cover the debt.) You would use the 1099-a for calculating the gain/loss on disposition of an asset (depending what kind of asset, might not even be reportable.) Since the 1st mortgage is given priority, you would have cancellation of debt less frequently on 1st mortgages than on 2nd.

You get into weird stuff very quick though. For example, it's my understanding that in some places in the above scenario, where the bank takes a home worth $250k to satisfy $200k debt they're required to give the $50k difference to the taxpayer. I've seen it advocated that the $50k difference be entered as income on the individual tax return no questions asked. The IRS pub 4681 itself has a worksheet that adds "proceeds you received from the foreclosure sale" to the "sale price" when you report the disposition of the asset. Truth be told, in my area I have never heard of anyone getting money from the bank when they have a foreclosure. That includes when FMV exceeds loan.

There's also the (seemingly common) issue of the bank not issuing a 1099-c when debt exceeds FMV, even though they (well, according to the taxpayer) have cancelled the debt. In which case you potentially could have the cancellation of debt to report on the income tax return even though a 1099-c was not received.

And then of course my all time favorite, 1099-a in year 1, 1099-c in year 2 (or 3 or 4). Where the debt was not cancelled at time of abandonment, but rather in a later year. Take a rental home for example where the 1099-a information results in a $50,000 loss in year 1, and a $50,000 cancellation of debt in year 2. Big loss year 1, big income year 2. Potentially pushes taxpayer into a higher tax bracket in year 2 whereas both had occured in the same year it would be a wash.

I'm handling it kind of like 1098-t's. That is, assuming the document alone is not enough information to prepare the return.