*Tax Quips, Abandonment of Property (1099-A), Foreclosures, Insolvency

1099-A Abandoned Property

Posted on by TaxMama

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 – 0,000.
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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 ,000 profit by proving you are insolvent.
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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.
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You can read more about this in a MarketWatch.
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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.
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Where? Where else? At TaxMama.com.

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