1099A Foreclosed Rental Property

[kpangelinan]

I just wanted to make sure I didn't miss anything and any help or comments would be appreciated.

Client purchased a rental property (100% rental, no personal use) in 2005 for $160k. Property was foreclosed on (short sale $37,500) in 2010.

1099-A:
Box 2, balance of principle outstanding is $142k
Box 4, FMV is $52k
Box 5, Yes, borrower was liable for repayment of the debt

I reported the disposition of it on Form 4797 using the taxpayers basis and depreciation allowed. It came out to a small loss using the $142k as sales proceeds or should I use the $37,500 as sales proceeds? If using the short sale amount, it would be an even larger loss.

Or is it not to be reported on this form at all?

There wasn't a 1099C reported for this transaction, just the 1099A, but I wasn't sure if some of the amount, if any, depending on basis, is supposed to be reported as other income on line 21 if the 1040.

Adjusted basis comes to $144k.

[jaybird]

I had a similar situation this last year. I could not find much out there for guidance. This is my take - since a 1099A is the notice of abandonment, and not technically any debt has been forgiven yet (until to 1099C arrives). I would report the sales price as 37k, the basis of 144, with a big loss, and probably a NOL situation. I carried that forward, to use when the 1099C comes, if ever. Then the forgiveness of debt (142 less the 52 or 37, who knows what lenders do or think) can be offset by the NOL. I think it should be a 4797 scenario.

[Gary2]

Usually, on a recourse loan, the FMV on the 1099-A is treated as the sale price, so one question is why did they report $52K instead of $37.5K?

[kpangelinan]

Thank you!

I had a similar situation this last year. I could not find much out there for guidance. This is my take - since a 1099A is the notice of abandonment, and not technically any debt has been forgiven yet (until to 1099C arrives). I would report the sales price as 37k, the basis of 144, with a big loss, and probably a NOL situation. I carried that forward, to use when the 1099C comes, if ever. Then the forgiveness of debt (142 less the 52 or 37, who knows what lenders do or think) can be offset by the NOL. I think it should be a 4797 scenario.

I think you're right....this is how I was thinking as well.....I've also heard stories where the bank sent a 1099C the following year on the property after they exhausted all of their resources for collecting the debt.

Usually, on a recourse loan, the FMV on the 1099-A is treated as the sale price, so one question is why did they report $52K instead of $37.5K?

Not sure, unless they added attorney's fees and what not? I have the paperwork from the short sale (someone got a really good deal) and it is the $37.5k and the 1099A has the $52k as its FMV.

[GTS1101]

I wanted to throw in my 2 cents on your situation. Never ever ever go with the numbers on a 1099-A or 1099-C. The information reported on these forms are almost always wrong. The banks usually will report incorrect information and will put on the forms what benefits the bank the best not what the true numbers are.

I recommend you check out Lisa Ihm on google. She offers the best I mean the absolute best course and training on dealing with COD income, short sales, foreclosures and NOL's. She has the best worksheets available to calculate the sale, COD, and guidance on NOL's. In my opinion there is no one as wise as her in this area of the tax law. She has over 20 years experience and teaches seminars all around the country.

In California if you purchase a home as a rental property and told the bank you were buying as a rental than it is a recourse loan. So when a loan is recourse you use the FMV as the selling price. In the case of a short sale the FMV is the selling price of 37K. Does not matter what the bank put on the 1099-A. Go with the facts. Further reduce the selling price by the cost of sale.

Regarding a 1099-C the bank does not always issue a 1099-C for COD income. But you don't have COD income because a bank issues a 1099-C or not. If someone does not get a 1099-MISC does that mean they don't have to report their self employment income? No they still report whether they get it or not. Same with COD income. If you have a recourse loan and a short sale you are going to have COD income. But 95% of the time in my experience most of my clients were insolvent by the full amount and had no COD to deal with or had a very small amount of COD that was offset by the huge loss. I had many clients who I was able to do NOL's due to losing rentals to foreclosure and short sale. Some of them got 20,000 to 30,000 refunds due to the huge losses.

GTS1101

[S T]

Website or Contact

GTS can you point us to her website - Tried Google for Lisa LHM and have several references.

Thanks,
Sandy

[jaybird]

Lisa Ihm that's an 'i" not an "L"

[GTS1101]

Sorry here is the link to her website:

http://lisaihm.com

The two day cancellation of debt workshop is the best and it is worth every penny. I have done her one day seminar at that was very informative and I learned so much that I did not know. The two day workshop is hands on and I will be taking that seminar this October in Napa, CA for a refresher course.

GTS1101

[kpangelinan]

I wanted to throw in my 2 cents on your situation. Never ever ever go with the numbers on a 1099-A or 1099-C. The information reported on these forms are almost always wrong. The banks usually will report incorrect information and will put on the forms what benefits the bank the best not what the true numbers are.

I recommend you check out Lisa Ihm on google. She offers the best I mean the absolute best course and training on dealing with COD income, short sales, foreclosures and NOL's. She has the best worksheets available to calculate the sale, COD, and guidance on NOL's. In my opinion there is no one as wise as her in this area of the tax law. She has over 20 years experience and teaches seminars all around the country.

In California if you purchase a home as a rental property and told the bank you were buying as a rental than it is a recourse loan. So when a loan is recourse you use the FMV as the selling price. In the case of a short sale the FMV is the selling price of 37K. Does not matter what the bank put on the 1099-A. Go with the facts. Further reduce the selling price by the cost of sale.

Regarding a 1099-C the bank does not always issue a 1099-C for COD income. But you don't have COD income because a bank issues a 1099-C or not. If someone does not get a 1099-MISC does that mean they don't have to report their self employment income? No they still report whether they get it or not. Same with COD income. If you have a recourse loan and a short sale you are going to have COD income. But 95% of the time in my experience most of my clients were insolvent by the full amount and had no COD to deal with or had a very small amount of COD that was offset by the huge loss. I had many clients who I was able to do NOL's due to losing rentals to foreclosure and short sale. Some of them got 20,000 to 30,000 refunds due to the huge losses.

GTS1101

Sorry here is the link to her website:

http://lisaihm.com

The two day cancellation of debt workshop is the best and it is worth every penny. I have done her one day seminar at that was very informative and I learned so much that I did not know. The two day workshop is hands on and I will be taking that seminar this October in Napa, CA for a refresher course.

GTS1101

I went to the link......pretty simple sight....I'm contacting her to see if they sell dvd's of the seminars....looks like some good info....thank you so much for your response and for the link. Hope I can repay with some knowledge of my own down the road.

[Gary2]

Regarding a 1099-C the bank does not always issue a 1099-C for COD income. But you don't have COD income because a bank issues a 1099-C or not. If someone does not get a 1099-MISC does that mean they don't have to report their self employment income? No they still report whether they get it or not. Same with COD income. If you have a recourse loan and a short sale you are going to have COD income.

The issue isn't whether, but when.

I would guess that on a short sale, the paperwork would include the dismissal of any recourse debt upon completion of the sale, so it would be at the same time. But in other circumstances, say a foreclosure, you can't assume that the mortgage holder has written off the remainder of the debt on the day of foreclosure. They could, in theory, try to recover the remainder in court. Or it could be a matter of their accounting policy, or state law concerning deadlines for filing suit, or whatever. The point being that if you claim the COD in one year, but a 1099-C is issued in a future year, you've just complicated matters.

My first reaction in such situations is to have the client contact the creditor to find out if and when the 1099-C will be issued.