Federal Tax liability on foreclosed property after BK7 Discharge

[Sweetpea3829]

Quick rundown...our BK7 was discharged in April of 2007. We stayed and paid on one of two multifamily properties discharged in the BK. The first property was foreclosed on immediately. I don't recall having any tax liability to it. In 2011, we relocated, purchased a home here in NY and let the other property go, after over two years of attempting a mortgage modification with the lender. It's foreclosure was completed last spring/summer.

Today I received a 1099-A from the lender detailing the property's value, that it was abandoned, etc. There's a box that says "If checked, the borrower was personally liable for repayment of the debt."

1) We were not personally liable for repayment of the debt, as it had been discharged, correct?

2) What exactly does this 1099-A mean? Are we going to have federal tax implications for the property being foreclosed?

[tobee43]

which property was it???

if it was the one you lived in you just attach a form 982 with your return. you should be fine. now if it was income property that you were collecting rents on that could be another story.

oh!! maybe this will help from one of the blogs i posted on 1099A's

http://www.bkforum.com/entry.php?451-What-to-Do-With-Form-1099-A&bt=2567#comment2567

[Sweetpea3829]

Tobee, good to see ya again, lol!

The answer to your question is "both". We lived in the home as our residence until Jan of 2011 when my husband took a job out of state and we moved. The property has always been a rental, with three units. We continued to collect rent from 1 tenant until late Summer of 2011. At that point, we made the final decision to not keep the property, as the lender had been bull-headed with modifying the loan. The loan was discharged years prior, so it didn't matter to us. When the final decision was made, we informed the one tenant that we were giving up the property, he no longer needed to pay us rent and he was free to stay as long as the foreclosure took, and that he would probably have at least a year rent-free. He chose to leave the next month. So from Sept 2011 and on, it sat empty. We closed on our single family property here in NY in Sept of 2011.

Another thing...the amount we owed was greater than the amount the property was valued at, as indicated on the 1099-a. I believe that absolves us from income tax liability also.

[tobee43]

good to c u too sweetpea!

your tax liability is not unfortunately based on what the property is worth at this time. it's the difference between what you owed on the mortgage and what the bank had to "eat". therefore, it's considered a "gain" on your behalf. example...the property you purchased for 500,000 with a 400,000 mortgage. you owe 300,000 today but it's only worth 200,000 so the bank would consider a gain to you of 100k.

i'll think you will be just fine with the attachment of the form 982 just if i were you, definitely have an accountant do your taxes this year. the fact the mortgage was discharged you'll be fine!

[Sweetpea3829]

Is it an issue that the lender checked box 5, indicating we were personally liable for the debt? I read briefly on Google that this regards recourse vs non-recourse or something along that line....my understanding is that it wasn't necessarily pertaining to the discharge.

[tobee43]

they usually check it whether it's relative or not and because you rec'd one, i would check with your accountant, but if it were me, i would attach the 982 whether any box was checked. and, for you, you know it's not since the mortgage was discharged in your bk, which is exactly what the 982 will reflect and communicate in irs terms directly to them so your butt is covered

the problem with these 1099's is they are reported to the irs and could present an issue if you don't deal with it head on. it's just one little page to fill out and attach to your return to make certain it's covered.

[Sweetpea3829]

Thanks Tobee! We have a CPA do our taxes anyways...so I'll just make sure he attaches the correct forms and be done with it. Such a relief...lol. We had a tough year last year, my husband was injured and lost 7 months of work. We've kept our heads above water, but are really relying on this year's tax return to solidify our financial standing.

[LadyInTheRed]

You don't need to file form 982 unless you get a 1099C. The 1099A contains information to determine the gain or loss on the property. It only requires action if you need to info to claim a gain or loss on your reutnr. It may be relevant for your investment property. Read the link in Tobee43s blog. I also found another helpful article with links to relevant IRS publications:

http://www.**********.com/blog/2011/...-what-do-i-do/

The 1099-A is simply a reporting document letting the IRS know that a disposition of real estate occurred. If the foreclosure and 1099-A are from an investment property, review IRS Publications 544 and 4681(links open PDF from www.irs.gov). However, it would be an odd circumstance for someone to have a capital gain on a foreclosure (not impossible, but rare).

[Sweetpea3829]

Good to know LadyinRed. I'll discuss it with our CPA and see what he says.

[tobee43]

sweatpea, so sorry to hear about your husband, our prayers will be with him for a speedy recovery. things will get better!!!

the 1099A really is the way the bank informs the irs of THEIR loss as lady points out. although true story, i have seen both an A and C issued on a mortgage..."People might receive multiple Forms 1099-A (one from each lender) for a single property. People might also receive Form 1099-C instead of Form 1099-A if the lender both foreclosed on the property and canceled any mortgage debt for which the borrower was personally liable". just to make life more confusing.


.. really when one thinks about these banks balance sheets at the end of the year they must justify their losses, much the way we do. that is why they send them. i have seen 1099 A, C, S, D, F, G...LOL!!! all of them, and they all stand for something whether it is your loss or theirs. (that can be also used to claim some types of liability payments) just to drive more people crazy!

however, if they check the box, and if it were me, i would ask your accountant, they may still want to send in the form, just because it's the irs.