OK Guys. 1099A but no 1099C

[WhiteOleander]

T/P has rent house that was foreclosed on. He has a 1099A for the sale. The box is marked that it is recourse debt. This will be reported on 4797 as a sale with his basis. He has a loss. But the loan company has not issued a 1099C. They told client that they are forgiving the debt. But they will not be issuing any more forms. It is a done deal. So, do we go ahead and report the forgiven debt? The bank has 2 years to try to collect it before forgiving.

Would you go ahead and report the cancellation of debt income in 2007 and amend if they actually forgive in a later year? Pub. 544 says they must issue a 1099C if the debt forgiven is over $600.00.

I'm not sure the right hand knows what the left hand is doing at the bank.

Thanks.

[JG EA]

No I wouldn't, because they may not have forgiven the debt.

[Nashville]

The Bank

The bank is driving this train, and Oleander is the caboose. Tax Preparers are quite often the last in the succession of knowledge of events.

Forgiveness of debt (if taxable) occurs in the year of the forgiveness. This is true regardless of whether the bank has the good sense to issue a 1099-C or not. I would ask to see evidence of this "forgiveness" in the client's documents. An agreement to accept less than the remaining principle, for example, would be clear evidence that the rest of the debt is forgiven, provided the client paid the stated amount. I would be suspicious of verbal statements claimed by the client -- he may be delusional about this forgiveness.

He may get a 1099-C two years from now, but again the bank is conducting the train, so who knows. If the loan is not repaid and you still have this client when the statutory collection period in your state has passed, then at some point he will have to claim the income (if taxable).

[LCP]

Am I correct that a foreclosure could result in a 1099A but not a 1099C if the bank thinks that it may still be able to collect from the homeowner?

..... and that the new debt fogiveness exclusion rules apply only if the debt is forgiven and a 1099C is issued?

[gkaiseril]

Secured vs Unsecured Debt

1099-A is for secured property and the 1099-C is for unsecured debt, like credit cards.

The secured property can be siezed and sold to cover the debt and that sale may, may not, or more than cover the liability. This result must be taken into consideration when preparing the return. If the siezed property was used as a business asset and depreciated, there is recapture of depreciation and a gain or loss. The 1099-A includes additional fields to disclose the information they have including FMV and sale proceeds.

The items acauired by credit card, unsecured, debt are not siezed and sold.

Both forms are not necessary for the same year.

Instructions for 1009-A &1099-C for 2007

http://www.irs.gov/pub/irs-pdf/i1099ac_07.pdf

[LCP]

Apparently the 1099C also applies to mortgages. Check out this IRS notice dated yesterday (2/12)

http://www.irs.ustreas.gov/irs/article/0,,id=179073,00.html

[gkaiseril]

IRS Does Not Stand Behind all Positing or Statements

Obiviously a PR type that has not read the IRS Instructions. Will the IRS stand behind this like they do for the information provided by their help line?

It appears this relief may not apply to home equity loans.

[WhiteOleander]

Thanks for the replies. T/P will wait until the 1099C is issued before reporting.

[LCP]

Sorry folks, I guess I'm a little dense, maybe my issue was answered and I'm not picking it up ....................

The bank took back the taxpayer's principal residense and issued a 1099-A that would otherwise result in a large gain.

They havn't sold the property..... perhaps that is the reason why they haven't forgiven the debt and issued a 1099-C. Or perhaps they think they may still be able to collect somehow and haven't issued a 1099-C. Or perhaps they should have issued one but just haven't.

Bottom line................. the recent home mortgage debt forgiveness income exclusion doesn't help this taxpayer at all......... or yet?????

[LCP]

Bumping to see if someone can clear up my confusion. If my issue isn't clear please ask me to clarify.

TIA!!!!!!

[WhiteOleander]

Sorry folks, I guess I'm a little dense, maybe my issue was answered and I'm not picking it up ....................

The bank took back the taxpayer's principal residense and issued a 1099-A that would otherwise result in a large gain.

They haven't sold the property..... perhaps that is the reason why they haven't forgiven the debt and issued a 1099-C. Or perhaps they think they may still be able to collect somehow and haven't issued a 1099-C. Or perhaps they should have issued one but just haven't.

Bottom line................. the recent home mortgage debt forgiveness income exclusion doesn't help this taxpayer at all......... or yet?????

The repo that the bank sold is considered a sale. The FMV listed on the 1099A is considered the selling price. So, the taxpayer has to figure their own basis to determine if there is a gain or loss. Then the sale would be reported on Sch D. If the property was a residence, and they met the qualifications, they could choose to exclude the gain under Sec. 121.

In my question, the property was a rental. So, they must report the gain or loss on a 4797 and let it flow from there.

The issue of debt forgiveness is a different matter. If the bank does not get the amount left on the note, there is forgiveness of debt to be reported on a 1099C. Some states give the banks several years to pursue the debt. So, they might not issue the 1099C for several years. Then the forgiveness is reported in the year they bank forgives it.

[LCP]

In my case, the debt on his personal residence exceeded the FMV by $28k so we are looking at that much income unless it can be excluded.

Would we report the income now and amend the return if a 1099C is issued in 2008?

[WhiteOleander]

In my case, the debt on his personal residence exceeded the FMV by $28k so we are looking at that much income unless it can be excluded.

Would we report the income now and amend the return if a 1099C is issued in 2008?

No I would not report the income unless a 1099C is issued. Some states require that debt on a residence is nonrecourse. So it is possible that your client may not have forgiveness of debt at all. Also, you may be able to find him insolvent on the date the debt is forgiven. So, you need some kind of info from the bank as to when they forgive the debt.

[LCP]

Are you basically saying that until a 1099C is issued there is no debt forgiveness?

This is a Michigan taxpayer and the box noting that the borrower was persionally liable is checked.

[yakopyan]

1099a on personal residence

I have a situation, where the debt in box 2 is 117K, and the FMV in box 4 is 92K. However, the cost basis in the property is 145K. On one hand you can report this on Schedule D with cost 145 and sale proceed 92. And, of course, the loss in non-deductible. However, do I still need to report the difference between the debt and FMV as an ordinary income. Also, this is a recourse debt. I think he shouldn't report the income, it's going to merely adjust his basis. Could you please confirm?

thanks,