Help on 1099A Tax Form Chapter 7

[lostinnola]

I filed Chapeter 7 and it went through and was discharged in May 2010. It took Citimortgage forever to get the property back and they finally took the property back in May 2011. Today, I go to my mail box and I have a 1099A tax form. I didn't think I would get this, since the property was included in a chapter 7 bankruptcy.

Can someone please tell me if I should have got this and what to do with it? I don't want to screw up my taxes. Thanks!

[feelingnutsy]

You are correct in getting in---and you need to file federal tax form 982
to indicate that you do not pay taxes on the property---and I believe you
need to fill in lines 1 and 2 on said form

You can do a search here to find out more information.

Hope this helps.

[tobee43]

hope this also helps a bit:

http://www.bkforum.com/entry.php?451-What-to-Do-With-Form-1099-A

also if you filed bk any amount the bank is attempting to claim as a gain is covered under the mortgage forgiveness debt relief act:

http://www.bkforum.com/entry.php?818-The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation&bt=2503#comment2503

[HHM]

You are correct in getting in---and you need to file federal tax form 982
to indicate that you do not pay taxes on the property---and I believe you
need to fill in lines 1 and 2 on said form

You can do a search here to find out more information.

Hope this helps.

Wrong, wrong.

1099-A is not about forgiven debt (that is the 1099-C), so you don't use form 982.

1099-A is about reportable gains on sale or disposition (e.g. foreclosure) of real estate. Generally, so long as you have no gain, there is nothing you need to do
See IRS publication 523.

If this was your primary residence and never reported any business use of the real estate, there is nothing you need to do with the 1099-A.

The biggest misconception going is that you won't RECEIVE a 1099-A or 1099-C because of a bankruptcy...keep in mind, those are just "reporting" forms. The 1099-A simply tells the IRS that a transfer of real estate took place which is a "potentially" taxable even. The 1099-C is the forgiveness of debt. You may still receive a 1099-C, if you do, then you use Form 982.

[tobee43]

HHM is right on.

here's the information printed out, just in case one does not want to click the link. also remember, it's best to consult your tax account when rec'ing a 1099A or 1099C:


When a house is foreclosed upon by the bank, the owners typically receive Form 1099-A from the lender showing several pieces of relevant information. The information on Form 1099-A will likely be needed to report the foreclosure properly on your tax return. A foreclosure is treated as the sale of property, and the former property owner will need to calculate their gain or loss on the property. But unlike a normal sale, there's no "selling price," and this is where the Form 1099-A comes into play. What to do with the information found on Form 1099-A has been asked by a number of readers, including "IcelandorBust," who posted this query on the message boards:

"Our home was foreclosed on in July 2009. The bank sold it to a new owner in November 2009. We received a 1099-A in January. We have not received a 1099-C. I have been unable to find a concrete answer as to what to do with the 1099-A."

Under the rules for calculating the tax consequences of a foreclosure, the taxpayer will need figure out the "selling price" so that gain or loss can be calculating. Depending on the type of loan, the taxpayer will utilize either the fair market value of the property or the outstanding loan balance on the property for the selling price. Both of these figures are reported on Form 1099-A. The outstanding loan balance is found in Box 2; the property's fair market value is found in Box 4. The date of the foreclosure is indicated in Box 1, and this will be used as the date the property was disposed of (that is, the "sale date"). Taxpayers will also need to know if the loan was a recourse or a non-recourse loan; the loan was probably a recourse loan if the bank has checked "yes" in Box 5 which asks "Was borrower personally liable for repayment of the debt?"

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.

Gain or loss is reported on Schedule D for homes that were personal residences. As a reminder, the IRS does not allow people to claim a loss on personal residences. Any gain (and I have seen situations where a foreclosure results in gain being reported) on personal residences can be offset by the capital gains exclusion for a main home.

[tobee43]

just to clarify one statement i just posted. one can indeed claim capital losses on property, however, that is really an non issue in this type of situation unless one was carrying over a capital loss for a few years prior to the foreclosure. (as those type of losses are limited to a max of claiming or carrying over at a rate of 3k yearly until the loss is depleted).

[karman]

HHM is right on.

here's the information printed out, just in case one does not want to click the link. also remember, it's best to consult your tax account when rec'ing a 1099A or 1099C:


When a house is foreclosed upon by the bank, the owners typically receive Form 1099-A from the lender showing several pieces of relevant information. The information on Form 1099-A will likely be needed to report the foreclosure properly on your tax return. A foreclosure is treated as the sale of property, and the former property owner will need to calculate their gain or loss on the property. But unlike a normal sale, there's no "selling price," and this is where the Form 1099-A comes into play. What to do with the information found on Form 1099-A has been asked by a number of readers, including "IcelandorBust," who posted this query on the message boards:

"Our home was foreclosed on in July 2009. The bank sold it to a new owner in November 2009. We received a 1099-A in January. We have not received a 1099-C. I have been unable to find a concrete answer as to what to do with the 1099-A."

Under the rules for calculating the tax consequences of a foreclosure, the taxpayer will need figure out the "selling price" so that gain or loss can be calculating. Depending on the type of loan, the taxpayer will utilize either the fair market value of the property or the outstanding loan balance on the property for the selling price. Both of these figures are reported on Form 1099-A. The outstanding loan balance is found in Box 2; the property's fair market value is found in Box 4. The date of the foreclosure is indicated in Box 1, and this will be used as the date the property was disposed of (that is, the "sale date"). Taxpayers will also need to know if the loan was a recourse or a non-recourse loan; the loan was probably a recourse loan if the bank has checked "yes" in Box 5 which asks "Was borrower personally liable for repayment of the debt?"

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.

Gain or loss is reported on Schedule D for homes that were personal residences. As a reminder, the IRS does not allow people to claim a loss on personal residences. Any gain (and I have seen situations where a foreclosure results in gain being reported) on personal residences can be offset by the capital gains exclusion for a main home.

If the debt was discharged in a chapter 7 bankruptcy, would checking "yes" in Box number 5 be in error?

[tobee43]

If the debt was discharged in a chapter 7 bankruptcy, would checking "yes" in Box number 5 be in error?

in this example it's the bank that check the box 5 as yes. of course they will answer yes to that box, as they have issued the 1099A attempting to make one responsible for what they claim is a gain.

however, and, remember, the mortgage forgiveness debt relief act would be most likely be applicable to all that were involved with a bk prior to the foreclosure as hhm pointed out. so in essence it's just a futile exercise on behalf of the bank, as if one can prove they were insolvent at the time of the loss, there are no tax ramifications. (take note that the act will be done at this end of 2012!)

[karman]

in this example it's the bank that check the box 5 as yes. of course they will answer yes to that box, as they have issued the 1099A attempting to make one responsible for what they claim is a gain.

however, and, remember, the mortgage forgiveness debt relief act would be most likely be applicable to all that were involved with a bk prior to the foreclosure as hhm pointed out. so in essence it's just a futile exercise on behalf of the bank, as if one can prove they were insolvent at the time of the loss, there are no tax ramifications. (take note that the act will be done at this end of 2012!)

The mortgage forgiveness act should not have any bearing at all, as the chapter 7 bankruptcy discharged would not make the borrower liable in any event. The mortgage forgiveness act would be helpful to people that did not file bankruptcy. The mortgage forgiveness act runs out at the end of this year, unless Congress extends it.

[tobee43]

yes, it does, there are certain criteria that must be met in order to utilize or apply the act to one's situation, one of those factors is being insolvent, which a bk clearly indicates and no further proofs are required.

it may not help those that simply walked away from their homes, those may be stuck having to pay on the 1099As. if you read the act, you will see the conditions which are required.

[HHM]

However, the Mortgage Debt Forgiveness act has no bearing on a 1099-A

Let's keep the issues straight, the OP got a 1099-A, not a 1099-C (at least not yet).

[tobee43]

However, the Mortgage Debt Forgiveness act has no bearing on a 1099-A

Let's keep the issues straight, the OP got a 1099-A, not a 1099-C (at least not yet).

since the 1099A is the banks way of indicating a gain which one may be liable to pay taxes on, unless one declared bk and was insolvent, i would think there is a correlation as with a 1099C. either one, the act covers other debts as well as mortgage forgiveness, so i with all due respect (of course) do believe it's applicable ;):

sorry to put the entire blog, but i'm a bit tired to cut and paste, so one can read through the lines. a debt to be considered can be a number of debts including a mortgage or a car loan.


"The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

If you owe a debt to someone else and they cancel or forgive that debt, the canceled amount may be taxable.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

The following are the most commonly asked questions and answers about The Mortgage Forgiveness Debt Relief Act and debt cancellation:

What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.

Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.


Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Qualified principal residence indebtedness:

This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.
These exceptions are discussed in detail in Publication 4681.

What is the Mortgage Forgiveness Debt Relief Act of 2007?
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007 (see News Release IR-2008-17). Generally, the Act allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

What does exclusion of income mean?
Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable. But the Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?
No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing
separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?
Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

How long is this special relief in effect?
It applies to qualified principal residence indebtedness forgiven in calendar years 2007 through 2012.

Is there a limit on the amount of forgiven qualified principal residence indebtedness that can be excluded from income?
The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if married filing separately for the tax year), at the time the loan was forgiven. If the balance was greater, see the instructions to Form 982 and the detailed example in Publication 4681.

If the forgiven debt is excluded from income, do I have to report it on my tax return?
Yes. The amount of debt forgiven must be reported on Form 982 and this form must be attached to your tax return.

Do I have to complete the entire Form 982?
No. Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Adjustment), is used for other purposes in addition to reporting the exclusion of forgiveness of qualified principal residence indebtedness. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, you only need to complete lines 1e and 2. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2, and 10b. Attach the Form 982 to your tax return.

Where can I get this form?
If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.

How do I know or find out how much debt was forgiven?
Your lender should send a Form 1099-C, Cancellation of Debt, by February 2, 2009. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that you enter on lines 2 and 10b, if applicable, on Form 982.

Can I exclude debt forgiven on my second home, credit card or car loans?
Not under this provision. Only cancelled debt used to buy, build or improve your principal residence or refinance debt incurred for those purposes qualifies for this exclusion. See Publication 4681 for further details.

If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.

I lost money on the foreclosure of my home. Can I claim a loss on my tax return?
No. Losses from the sale or foreclosure of personal property are not deductible.

If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?
Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.

If the remaining balance owed on my mortgage loan that I was personally liable for was canceled after my foreclosure, may I still exclude the canceled debt from income under the qualified principal residence exclusion, even though I no longer own my residence?
Yes, as long as the canceled debt was qualified principal residence indebtedness. See Example 2 on page 13 of Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

Will I receive notification of cancellation of debt from my lender?
Yes. Lenders are required to send Form 1099-C, Cancellation of Debt, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form.

What if I disagree with the amount in box 2?
Contact your lender to work out any discrepancies and have the lender issue a corrected Form 1099-C.

How do I report the forgiveness of debt that is excluded from gross income?
(1) Check the appropriate box under line 1 on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income on line 2. Any remaining canceled debt must be included as income on your tax return.

(2) File Form 982 with your tax return.

My student loan was cancelled; will this result in taxable income?
In some cases, yes. Your student loan cancellation will not result in taxable income if you agreed to a loan provision requiring you to work in a certain profession for a specified period of time, and you fulfilled this obligation.

Are there other conditions I should know about to exclude the cancellation of student debt?
Yes, your student loan must have been made by:

(a) the federal government, or a state or local government or subdivision;

(b) a tax-exempt public benefit corporation which has control of a state, county or municipal hospital where the employees are considered public employees; or

(c) a school which has a program to encourage students to work in underserved occupations or areas, and has an agreement with one of the above to fund the program, under the direction of a governmental unit or a charitable or educational organization.

Can I exclude cancellation of credit card debt?
In some cases, yes. Nonbusiness credit card debt cancellation can be excluded from income if the cancellation occurred in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See the examples in Publication 4681.

How do I know if I was insolvent?
You are insolvent when your total debts exceed the total fair market value of all of your assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts.

How should I report the information and items needed to prove insolvency?
Use Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) to exclude canceled debt from income to the extent you were insolvent immediately before the cancellation. You were insolvent to the extent that your liabilities exceeded the fair market value of your assets immediately before the cancellation.

To claim this exclusion, you must attach Form 982 to your federal income tax return. Check box 1b on Form 982, and, on line 2, include the smaller of the amount of the debt canceled or the amount by which you were insolvent immediately prior to the cancellation. You must also reduce your tax attributes in Part II of Form 982.

My car was repossessed and I received a 1099-C; can I exclude this amount on my tax return?
Only if the cancellation happened in a title 11 bankruptcy case, or to the extent you were insolvent just before the cancellation. See Publication 4681 for examples.

Are there any publications I can read for more information?
Yes.
(1) Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments (for Individuals) is new and addresses in a single document the tax consequences of cancellation of debt issues.

(2) See the IRS news release IR-2008-17 with additional questions and answers on IRS.gov."

[HHM]

The 1099-A HAS NOTHING TO DO WITH DEBT.

The OP will probably get a 1099-C at some point. But you are totally confusing the issues.

1099-A is merely a reporting document that lets the IRS know that a TRANSFER or real estate took place, THAT's IT. It doesn't have any more meaning than that. The burden is on the debtor to determine if there is a gain or loss. However, since this residence was likely a primary residence and it is unlikely the debtor would have realized a gain in a foreclosure scenario, there IS NOTHING the OP needs to do. Period.

[tobee43]

i hear you, and i understand what you are saying, BUT...i have seen the 1099A's come in and many not followed by 1099C (more commonly found JUST in my experience with credit cards etc.).

yes, i understand the significance of a 1099A a 1099S a 1099P..yes, seen one of those too...none had any tax ramifications under certain circumstances even without the act being in effect. but what i'm getting at here are those that receive the 1099As from the bank for the gain after a foreclosure and i'm just saying that has no tax ramification under the mortgage forgiveness act if you filed bk.

is that a period...LOL!!! and i agree there is nothing Op needs to do and NOT to be confused with a attached 982 for a 1099C. okay?

[sunflwrgrl13]

So just to make sure I completely understand, you don't have to include the info from a 1099A anywhere on a 1040? I just completely ignore it?

What if there is a loss? Let's say the amount owed was $130k and the fair market value was $125k. Does that factor in anywhere?

Just as any FYI, we filed ch.7 and it was discharged back in March 2011. These 1099s related to foreclosure/bk are new to me, and I just want to make sure I understand them.