Bankruptcy & 1099-A

[Bill Tubbs]

I'm not too familiar with bankruptcy at all. I've done a couple 1099-C's.

Client brought in 1099-A (numbers rounded) for their main home. Box 2 (balance of principal remaining) $100,000, and Box 4 (FMV of property) $150,000.

Court decree from summer 2011 shows Chapter 7 of Title 11. There were also some credit cards "wiped out" (which client has not received a 1099-C for but I'm thinking they propbably will, right?)

For the 1099-A: do I fill in Form 982? My reading of that would indicate checking box 1a, but then what goes in box 2? Any other lines filled in, or any other forms?

Thanks,
Bill

[BHoffman]

Hi Bill - in this situation, I report the 1099-A on Sch D. I put "Form 1099-A" in the description field. The cost basis is acquisition cost plus improvements.

In all instances, a Gain may be excluded if Sec 121 applies. Losses are never allowed.

You have to determine whether the loan is recourse (borrower liable) or non-recourse (lender accepts the property as loan payment in full).

If recourse, the sale price is the loan amount plus any consideration paid to the borrower. It is unusual for the FMV to be higher than the loan balance, and I would be asking the client if the lender gave him any money. You might see form 1099-C in some subsequent year and would report that on form 982.

If non-recourse, the sale price is the loan amount. You should not be seeing form 1099-C for a non-recourse loan.

This is the way my research indicates and the way I'm advised by some trusted and experienced tax preparers to report form 1099-A for primary residences. I'm curious how others handle this.

Here are two articles I like:

http://www.smartmoney.com/taxes/income/the-tax-implications-of-foreclosures/

http://www.smartmoney.com/taxes/income/more-tax-implications-of-foreclosures-1328037042814/

[BP.]

1099-A for their main home. Box 2 (balance of principal remaining) $100,000, and Box 4 (FMV of property) $150,000.
For the 1099-A: do I fill in Form 982?

It is unusual for the FMV to be higher than the loan balance.
You might see form 1099-C in some subsequent year and would report that on form 982.

I had a 1099-A like yours today; FMV higher than loan balance.
Since no debt was forgiven, I'm deciding against the Form 982 right now.
Maybe a 1099-C will appear . . .

[dan doshan]

I believe you would only use a form 982 if there were a cancellation of debt.

[Bill Tubbs]

separate bankruptcy estate?

Hi Bill - in this situation, I report the 1099-A on Sch D. I put "Form 1099-A" in the description field. The cost basis is acquisition cost plus improvements.

[...]

BHoffman,

I don't doubt that's the way to handle a 1099-A outside of bankruptcy, but is that the same treatment for a 1099-A because of bankruptcy?

This link: http://www.ehow.com/info_12016019_de...ile-taxes.html
says that a separate bankruptcy estate return needs to be filed (but the 1099-A's came in the client's SSN, not any EIN that would indicate there was even a bankruptcy estate), and the Pub 908 instructions would seems to back up this webpage.

Any further thoughts?

Bill

[BHoffman]

Hi Bill - I read the info on your link. Perhaps a discussion with the bankruptcy attorney might be helpful. Good luck.

[Bill Tubbs]

attorney...

Hi Bill - I read the info on your link. Perhaps a discussion with the bankruptcy attorney might be helpful. Good luck.

Yeah... tried that already. He just knows it's not taxable and photocopied a page out of the Pub 908. But, if I don't report it somehow, since the 1099-A is in the client's SSN, then they'll get a matching letter asking about it...

[RitaB]

Burning Question

BHoffman,

I don't doubt that's the way to handle a 1099-A outside of bankruptcy, but is that the same treatment for a 1099-A because of bankruptcy?


Bill

Great. I have one now. Personal residence, meets the Section 121 requirements to exclude the gain. FMV is 32,000 less than debt owed.

Been searching for how to treat this since bankruptcy is involved. Can anybody post a link that I am overlooking?

And, yes, Bill, I hear ya, attorney knows it's not taxable. So what? I gotta fill out the forms, he doesn't.

[BHoffman]

I think some people don't report 1099A at all and have had no problems according to other forums.

I look at 1099A to determine taxable gain from the "sale" (foreclosure) of a residence. Maybe that's overkill due to my own automatic response at wanting anything saying "1099" on it to be reported somewhere on the tax return. So far, all of the returns I've done result in either a nondeductible loss or a Sec 121 exclusion, so there is no tax effect.

If the regular sale of a personal residence results in no taxable income, I think the destructions tell us not to report it at all. Maybe this is the same thing.