1099-A is Wrong

[Harvey Lucas]

Taxpayer lost his home to forclosure 3-12-10.

It was his qualified main home.

He paid 489,000 in 2007.

Balance on his mortgage was 489,000 on the date of forclosure.

The FMV on 3-12-10 was 287,000 because two days later the bank sold the property for that amount to a thrid party.

However, the 1099-A says the FMV was 591,654.

Following the example in TTB, pgs 14-11 and 14-12, I find the following.

Using the worksheet on 14-11, Part 1, Income from COD
line 1, debt cancelled, is 489,000
Line 2, the FMV is 287,000 (I ignored the erroneous 1099-A amount of 591,654)
Line 3, income from COD is 202,000
This COD income is nontaxable because it is "Qualified Principle Residence Debt", I fill out form 982 and check the appropriate box to indicate this.

Now on to Part 2, Gain or Loss from Forclosure,
Line 4, smaller of Line 1 or 2 above, is 287,000
Line 5, adjusted basis is 287,000, (pp 489,000 less 982 excluded COD 202,000)
Line 6, Gain or loss from foreclosure is 0.

Will I have any problems ignoring the erroneous FMV listed on 1099-A of 591,654?

Would I report the Sale/Forclosure on sch D to indicate Sale Price 287,000, basis 287,000, Gain/Loss of 0. Or would I simply report nothing on Sch D.

It appears there is a typo on pg 14-12, "Worksheet for Determining Taxability......", line 11 says "Capital gain or loss (lines 1+7-10)"....
I think it should say, "Capital gain or loss (line 1-7-10)"

Thank You,
Harvey Lucas

[solomon]

Taxpayer lost his home to forclosure 3-12-10.

It was his qualified main home.

He paid 489,000 in 2007.

Balance on his mortgage was 489,000 on the date of forclosure.

The FMV on 3-12-10 was 287,000 because two days later the bank sold the property for that amount to a thrid party.

However, the 1099-A says the FMV was 591,654.

Following the example in TTB, pgs 14-11 and 14-12, I find the following.

Using the worksheet on 14-11, Part 1, Income from COD
line 1, debt cancelled, is 489,000
Line 2, the FMV is 287,000 (I ignored the erroneous 1099-A amount of 591,654)
Line 3, income from COD is 202,000
This COD income is nontaxable because it is "Qualified Principle Residence Debt", I fill out form 982 and check the appropriate box to indicate this.

Now on to Part 2, Gain or Loss from Forclosure,
Line 4, smaller of Line 1 or 2 above, is 287,000
Line 5, adjusted basis is 287,000, (pp 489,000 less 982 excluded COD 202,000)
Line 6, Gain or loss from foreclosure is 0.

Will I have any problems ignoring the erroneous FMV listed on 1099-A of 591,654?

Would I report the Sale/Forclosure on sch D to indicate Sale Price 287,000, basis 287,000, Gain/Loss of 0. Or would I simply report nothing on Sch D.

It appears there is a typo on pg 14-12, "Worksheet for Determining Taxability......", line 11 says "Capital gain or loss (lines 1+7-10)"....
I think it should say, "Capital gain or loss (line 1-7-10)"

Thank You,
Harvey Lucas

The taxpayer does not have cancellation of debt until a 1099-C is issued. This is simply a sale to report at this point using the 1099-A.

[Gary2]

Did the bank buy the property at the foreclosure sale and then turn around and sell it? If so, how much did the bank pay for the property at the foreclosure sale? That's the number I'd expect to use as FMV.

Or is the $287K the foreclosure price, and the "two days later" just the time between the foreclosure sale and the closing on the sale? I'm used to thinking that sheriffs, not banks, do the selling, but I remember that in some states, the language has the mortgagee selling the property.

[Harvey Lucas]

The bank forclosed on the property, and then a few days later an unrelated third party bought it from bank for 287,000, then about four months after that the third party sold it for 310,000.

[Gary2]

Something doesn't compute. No bank is going to buy a property at foreclosure at $591K and then sell it two days later at $287K.

[David1980]

I really don't think it matters. If you use the FMV of $287 no income is recognized and no loss allowed.

If you use the FMV of $591 there is no COD income. There is gain, which would be wiped out by section 121.

So unless the taxpayer needs to use the section 121 exclusion again within 2 years, it's all moot. I'd file it the first way (seems more correct to me.)