Form 1099-A

[Questionguy101]

I have read a lot about how to report a Form 1099-A in this forum and I have relied on the information to prepare a few tax returns before. I again have one this year and I want to make sure my memory is correct.

The IRS treats foreclosure as a sale of the property. So we have to derive the selling price.

If box 5 is checked, the selling price is the amount in box 4 "Fair market value of the property".

If box 5 is not checked, the selling price is the lesser of box 2 "Balance of principal outstanding" and box 4 "Fair market value of property".

Am I correct so far?

And then if the amount at box 2 "balance of principal outstanding" is more than box 4 "fair market value of property", and if box 5 is not checked, the taxpayer will have cancellation of debt income equal to box 2 minus box 4, even if there is 1099-C issued. Am I also correct here?

Thank you very much for your help.

[Gary2]

If box 5 is checked, the selling price is the amount in box 4 "Fair market value of the property".

Often, yes. But if it's more than the outstanding principal, you have to investigate what happened to the excess funds.

If box 5 is not checked, the selling price is the lesser of box 2 "Balance of principal outstanding" and box 4 "Fair market value of property".

Am I correct so far?

Not quite on this. The selling price will typically be the greater of the two. That's because with non-recourse debt, it's treated as if the entire debt was the sale price. Once again, if the FMV is greater, you need to determine what happened to the excess.

And then if the amount at box 2 "balance of principal outstanding" is more than box 4 "fair market value of property", and if box 5 is not checked, the taxpayer will have cancellation of debt income equal to box 2 minus box 4, even if there is 1099-C issued. Am I also correct here?

Again, not quite. If box 5 is not checked, and assuming that it's correct that it's non-recourse debt, then there is no cancellation of debt. If it is checked, then there may or may not be cancellation of debt at that time. It's possible that the lender may still try to collect the remainder, or postpone cancelling the debt.