My client received 3 1099-As. One for her principal home and box 2 is greater than box 4. She also received two 1099-As for time shares. In both cases box 4 is more than box 2. She also filed for bankruptcy and was granted a discharge under section 727 of Title 11 on 8/12/13. How do I report this on the tax return? Do I put this on Form 982 and add up all values in box 2 from the three 1099-As?
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A 1099-A represents a deemed sale. The only connection between a 1099-A and cancelation of debt income is that a) it's often a precursor to CODI; and b) it can usually be omitted by the lender if they issue a 1099-C that includes all the relevant 1099-A info. Thus these need to be treated as capital gains or losses.Originally posted by Gary View Post
As for the canceled debt, assuming these are all recourse debt, and as long as they're listed as discharged in the bankruptcy papers (or, in some forms, in the bankruptcy petition and not listed as "excluded from discharge"), you claim the canceled debt on the 982 in the year of discharge. In theory, this is supposed to be done in the 1041 for the bankruptcy estate, but I've yet to see one. I've never had to deal with a timeshare, but I wouldn't rule out the possibility that the numbers are correct, implying a capital gain. Nor would I rule out the possibility that all the numbers are incorrect.
Warn the client to keep the return forever. Lenders have the bad habit of sending the 1099-C (even though not required for bankruptcy) years after they should have been sent, in which case the taxpayer has to prove to the IRS that the 1099-C is wrong and the 982 was filed in the correct year. This is yet another reason to confirm the bankruptcy discharged these specific debts, which puts you on firm ground for handling it now instead of waiting for a 1099-C. -
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