1099A Abandonment of Secured Property

[zeros]

Preparing a 2010 return for new client. She has this form in her papers. She lost her home.

2. Balance of principal outstanding $122,012.45
3. Blank
4. Fair market value of property $133,780.82

Borrower personally liable for repayment of the debt? Yes

Any entries I need to make in this situation?

[DaveinTexas]

Let's assume the note is non-recourse

Preparing a 2010 return for new client. She has this form in her papers. She lost her home.

2. Balance of principal outstanding $122,012.45
3. Blank
4. Fair market value of property $133,780.82

Borrower personally liable for repayment of the debt? Yes

Any entries I need to make in this situation?

Then the sales price, if reported on a schedule D, is the outstanding loan balance prior to foreclosure. This will most likely result in a non-deductible loss so there really isn't a reportable transaction.

If the loan is recourse then the sales price is the lesser of the FMV or the outstanding loan balance prior to forecolosure. In your example this would result in the same transaction.

Check to see if your state is a recourse or a non recourse state to take the right course of action. In your client's case, it won't matter either way but you may run across different figures one day where it will greatly affect the client.

[Bees Knees]

That assumes the loan balance is due to acquisition debt. If the taxpayer has a basis in the property less than the outstanding loan balance (such as when the taxpayer takes out home equity debt to buy a new speedboat), then the taxpayer could have a taxable gain.

[DaveinTexas]

True indeed

That assumes the loan balance is due to acquisition debt. If the taxpayer has a basis in the property less than the outstanding loan balance (such as when the taxpayer takes out home equity debt to buy a new speedboat), then the taxpayer could have a taxable gain.

I suppose the section 121 exclusion could be used at that point if the TP qualifies.