1099-A Clients lost their House

[zeros]

Client brought in this form after losing their house. What action is required?

[mooretax]

1099-a

It is considered a sale of the home.

See page 5 of 2014 publication 544 to fill out the worksheet

http://www.irs.gov/pub/irs-pdf/p544.pdf

[ATSMAN]

Look at the figures in both the boxes. If the FMV of the property is more than the amount discharged, no action required at this time! If it is the other way around it may be taxable. Is the client also filing for bankruptcy?

[Gary2]

Look at the figures in both the boxes. If the FMV of the property is more than the amount discharged, no action required at this time! If it is the other way around it may be taxable. Is the client also filing for bankruptcy?

If the FMV is more than the loan balance, and it's a non-recourse loan, and the FMV is reasonably accurate, then you have a disposition of the property at a profit, often excludable under 121, which should be reported as such.

If it's a recourse loan, with FMV (accurately) more than the balance, then you need to find out whether title or possession of the property transfered. (It's not an imputed sale on an abandonment with a recourse loan until the lender actually takes control of the property or title transfers.) This is normally treated as a sale at FMV, but you can factor in costs that result in the taxpayer not receiving the excess. Again, 121 may apply.

If it's a recourse loan, and if the FMV is less than the loan, then there may be cancellation of debt income as some point in time, not necessarily the date on the 1099-A. You'll need to find out from the lender or possibly state law when the debt was or will be canceled. You also have a sale at a loss, which some people consider non-reportable but my preference is to report, usually as a non-deductible personal loss.