1099-A Abandoned Property

Happy National Wear Red Day

 

Today TaxMama hears from Sylvia in the TaxQuips forum, with this terse question. “Box 2 $160,000 Box 4 $150,000. Adj Basis $210,000. Which Form (982)? and which lines to use.”

Dear Sylvia,

You have two things happening here on Form 1099-A, which have different reporting requirements.

1) A sale of the property.

2) Cancellation of debt income (potentially)

The sale of the property goes on Schedule D. Your sales price is probably the principal balance – $160,000.

Your basis is $210,000. If this was your personal residence, you would enter $160,000 on Schedule and show no gain or loss.

Then you have the cancellation of debt. Your mortgage balance was $160,000. The fair market value was $150,000 (one assumes that’s what they sold it for?), So you have cancellation of debt of $10,000.

That might be ordinary income, reported as Other income on the Form 1040 – I think that’s Line 21.

Form 982 is for get out of paying tax on that $10,000 profit by proving you are insolvent.

My numbers here are just guesstimates. You really want a tax professional who is experienced with foreclosures to look at your whole picture. It’s quite possible, if this was the original loan on the house, you can entirely avoid the cancellation of debt problem.

You can read more about this in a MarketWatch.com article I wrote a while back. Please read it and follow the links in the article.

And remember, you can find answers to all kinds of questions about abandonment and foreclosure, and other tax issues, free. Where? Where else? At TaxMama.com.

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10 thoughts on “1099-A Abandoned Property

  1. TaxMama says:

    Dear Letitia,

    Remember (read the information in the original answer above), there are two parts to the 1099-A.

    1) Yes, you can use your personal residence exclusion on the SALE part of the transaction.

    2) You still have to address the cancellation of debt issue. So read the whole discussion here, the MarketWatch article which explains some options you have to get out of the taxes on this income – and there more notes in the TaxQuips forum http://taxmama.wpengine.com/forum/taxquips/1099-a/

  2. Letitia Spellman says:

    I received a 1099A. I’m confused as to how to report on form 982 for principal residence. I moved from the property due to foreclosure. Am I eligible for the principle residence exemption as I owned the property for 16 years.

  3. Wayne Beale says:

    I filed bankruptcy in 2009 an now I’m getting these 1099 from my ex-creditors. must I file this info with my 2009 income taxes and are these 1099 considered taxable income for …me

  4. TaxMama says:

    There are special provisions in the various tax bills in the last two years. That’s why there is a link to the MarketWatch article that outlines some of the options. Consider reading it…. ;~)

  5. Taylor Shepard says:

    Remember there are other ways to exclude COD income under Sec. 108! There is a qualified principal residence indebtedness exclusion that might work here for federal purposes. Most states follow the exclusion as well but I know California currently does NOT.

    Also, sometimes if the foreclosure happens in the same year the lender cancels the debt, the lender will choose to only send out a 1099-C reporting both transactions on one form and they won’t send a 1099-A. But the taxpayer still has to report the sale and the cancellation of debt income!

  6. Linda Dorfmont says:

    But the IRS doesn’t know it’s a principal residence, especially if the taxpayer has moved out of it and is filing from another address. I force these exempt home sales on Sch. D just to show it is principal residence

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