Client's home was repossessed and he received a 1099C showing the FMV of the house was higher than the balance of principal outstanding. What do I do with this information.
Thanks for your help in advance.
Thanks for your help in advance.
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1099C doesn't usually show balance of principal outstanding. It shows Amount of debt discharged, which is typically the difference between the FMV and the balance outstanding. Example: $500,000 owed bank, bank forecloses on home with FMV $300,000, taxpayer receives 1099-C showing $200,000 debt discharged.
So make sure you know what the real amount of the debt was prior to the foreclosure.
As far as how to report it on the return - Publication 4681 chapter 2 for Foreclosures and Repossessions is pretty good information. https://www.irs.gov/publications/p4681/ch02.html Specifically Table 1-1. Two potential things to report: Cancellation of debt income and the sale of the home. Cancellation of debt of course being either taxable on Form 1040 line 21 (assuming personal home) or excluded on Form 982 (if excludable.) Sale of a main home Sch D / 8949, if reporting required. Oh, and if they purchased the home in 2008 and got a first time homebuyer credit you'd file a 5405 as well. -
I apologize, the form client received was a 1099A not a 1099C. It does show the balance of principal outstanding. It shows there is a $14K difference between selling price and what was owed. Do I still report this on SCH D?
Thanks for your help in advance.Comment
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Yes, a 1099-A would show balance of principal outstanding - that makes more sense.
Since FMV of house is higher than balance of principal outstanding there shouldn't be any cancellation of debt income. So you're left with the sale of the home. It may or may not need to be reported at all. See Sch D instructions "Sale of Your Home" - https://www.irs.gov/instructions/i10...01.html#d0e264
Report the sale or exchange of your main home on Form 8949 if:
You can't exclude all of your gain from income, or
You received a Form 1099-S for the sale or exchange.Comment
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What's the purpose of a 1099A? If they sell this home, will he receive a 1099-S showing what it sold for and then you would report the sale on Sch D? This was a rental property at one time. This was not his personal residence for 3-4 years.Comment
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If not the taxpayer's main home, that exception to reporting in the Sch D instructions wouldn't apply. I read "client's home" and assumed "main home".
What was it? A main home turned rental turned vacant for several years then foreclosed?Comment
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Yes, he would report on 4797 when it is sold. And he should receive a 1099-S.Originally posted by tsuewalker View PostComment
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I have similar situation however NONRECOURSE debt. FMV is higher than debt.
My client had his house foreclosed. He left his house Fall of 2011. He filed Bankruptcy and put the house in the bankruptcy.
He just now gets a 1099-A. And the housing market in our area is booming so of course the FMV is now higher.
Box 1 is February 17, 2015
Box 2 is $132,165 Balance of principal outstanding
Box 4 is $143,000 FMV of property
Box 5 is not checked so it is NONRECOURSE debt
If I remember right, the sales price is the amount in Box 2 if it is Nonrecourse. $`132,165 his basis is $101,000.
So in this scenario he has a gain but he purposely put it in the bankruptcy so he wouldn't have to deal with any tax consequences.
At the time it was his personal residence so can you take the exclusion of the gain for personal residence?
Or are they looking at the 2/17/15 date?
How do I report this?
ThanksComment
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David1980, yes it was the client's personal residence 8-10 years ago and then they purchased another house which became their main home. They then rented the house for several years that was foreclosed on. The couple divorced and he filed bankruptcy and let them take the house at that time.Comment
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