Client brought in form 1099-A which is the first time I've seen one of these. She is living in the home but is required to vacate by 4/30/10. Principal oustanding balance is $147,118. Fair market value of property is $95,000. She is personally liable for repayment of the debt. Not sure what I need to do in this case? Any help out there?
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Get the IRS Pub 4681. She has sold her home to the bank for the FMV on the form. -
Loss on principle residence
I am assuming she is taking a loss on the repossession of her personal residence. Where do I report this?Originally posted by gkaiseril View PostComment
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Are we even supposed to report on a 1099-A or wait until a 1099-C comes when the bank issues one? I was told that a 1099-A does not need to be reported.
rfkComment
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It does need to be reported
1099-A and A is for action can't ignore itComment
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Sort-of true.Originally posted by rfk View Post
So the 1099-A gives you the information to report the gain or loss on disposition of an asset. For a personal home the loss is non-deductible because it's personal use property.
And of course the Sch D instructions indicate:
If you sold or exchanged your main home,
do not report it on your tax return unless
you cannot exclude all of your gain from
income. Any gain you cannot exclude is
taxable.
Now, IRS Pub 523 also indicates:
Do not report the 2009 sale of your main home on your tax
return unless:
· You have a gain and you do not qualify to exclude all
of it,
· You have a gain and choose not to exclude it, or
· You have a loss and you received Form 1099-S.
So almost certainly there is a loss, now does the rule for a 1099-S also apply to a 1099-A? I honestly don't know, but can't think of anything bad that would occur by reporting it when it's "maybe" not required to be reported.
That covers the loss on the sale of the home. What about cancellation of debt income? Well if FMV is greater than loan outstanding there isn't any. If FMV is less than the loan outstanding there might be. Was the loan cancelled? This is one of those "get more info" situations IMO. If it was cancelled and they owed more than FMV they might have to report the cancellation of debt income (or the 982). It could also be that the loan gets cancelled a subsequent year rather than the year of the 1099-A. OR, the bank might still be trying to collect that loan (depending on whether state law allows it.)Comment
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She likely has a non-deductible personal loss on the sale of the residence. Put it on SCH-D (you may have a, "sale-of-home" worksheet that does this for you in your software). She will get a 1099-C for the balance between the FMV and the balance of the principal. This often is received the year after the foreclosure depending on state foreclosure law. You will then need to figure out if the money on the 1099-C is fully taxable, partially taxable or non-taxable; this is done on Form 982 and associated worksheets. Print extra copies before trying to do the worksheet. The first one is always the worst! Good luckComment
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