Around tax time, this is a frequent question and the banks are starting to get their act together and issuing these IRS forms more frequently.
Let's start with the easier one first.
1099-C: relates to what the IRS calls forgiven debt income. Simply, if you owe $50,000 and settle it for $10,000, the IRS considers the difference, $40,000 as income. Now, although the IRS code does not "require" banks to issue a 1099-C on debt discharged in BK, the code does not forbid it. As such, many banks will issue 1099-C (especially mortgage lenders) on debt discharged in BK (it is simply easier for the banks computers). 1099-C's are easy to handle in the BK context. Simply fill out IRS Form 982 with your taxes. The form 982 is how you inform the IRS that you filed BK and discharged the debt in question and therefore not liable to pay tax. Don't waste your time and energy trying to get the bank to rescind it, they don't have to. (and even if you think the 1099-C is inaccurate, who cares, you discharged the debt in BK).
1099-A's are specific to real estate. A 1099-A reports to the IRS that a "transfer" of real estate occurred. A 1099-A is related to capital gains tax. For example, if you bought a house for $150,000 and sold it 8 years later for $250,000, you have a capital gain of $100,000 and that gain is "potentially" taxable. If you surrendered your house in BK and had a foreclosure (or simply had a foreclosure without BK), the bank still issues a 1099-A because a foreclosure is still a "transfer" of real estate. Now, if the property was your primary residence, you can basically ignore the 1099-A. After all, the exemption for having to report a cap-gain is $250,000 for single, and $500,000 for married. It is highly unlikely (virtually impossible) that a debtor would realize a $250,000 profit in a BK and foreclosure scenario. Unfortunately, you cannot claim a cap-loss on a foreclosure.
Now, if the property in question was an investment property (or if you rented your primary residence for a majority of time over the prior 5 years), you have a little work to do. You will need to figure out your adjusted basis. Although unlikely, it is mathematically possible to have a cap-gain on a foreclosure. If the debtor had been depreciating the property each year, it is possible that the adjusted basis (value) after depreciation of the property would be less than the foreclosure sale value. See IRS publications 544, 551, 4681.
So, nothing you really need to freak out over, if you get a 1099-C, simply fill out form 982. If you get a 1099-A, you can practically ignore it unless the property was an investment property of some kind.
EDIT: Incidentally, the form you use for 1099-A is simply IRS 1040, schedule D, but if you have no gain or no reportable gain then you don't need to do anything.
Let's start with the easier one first.
1099-C: relates to what the IRS calls forgiven debt income. Simply, if you owe $50,000 and settle it for $10,000, the IRS considers the difference, $40,000 as income. Now, although the IRS code does not "require" banks to issue a 1099-C on debt discharged in BK, the code does not forbid it. As such, many banks will issue 1099-C (especially mortgage lenders) on debt discharged in BK (it is simply easier for the banks computers). 1099-C's are easy to handle in the BK context. Simply fill out IRS Form 982 with your taxes. The form 982 is how you inform the IRS that you filed BK and discharged the debt in question and therefore not liable to pay tax. Don't waste your time and energy trying to get the bank to rescind it, they don't have to. (and even if you think the 1099-C is inaccurate, who cares, you discharged the debt in BK).
1099-A's are specific to real estate. A 1099-A reports to the IRS that a "transfer" of real estate occurred. A 1099-A is related to capital gains tax. For example, if you bought a house for $150,000 and sold it 8 years later for $250,000, you have a capital gain of $100,000 and that gain is "potentially" taxable. If you surrendered your house in BK and had a foreclosure (or simply had a foreclosure without BK), the bank still issues a 1099-A because a foreclosure is still a "transfer" of real estate. Now, if the property was your primary residence, you can basically ignore the 1099-A. After all, the exemption for having to report a cap-gain is $250,000 for single, and $500,000 for married. It is highly unlikely (virtually impossible) that a debtor would realize a $250,000 profit in a BK and foreclosure scenario. Unfortunately, you cannot claim a cap-loss on a foreclosure.
Now, if the property in question was an investment property (or if you rented your primary residence for a majority of time over the prior 5 years), you have a little work to do. You will need to figure out your adjusted basis. Although unlikely, it is mathematically possible to have a cap-gain on a foreclosure. If the debtor had been depreciating the property each year, it is possible that the adjusted basis (value) after depreciation of the property would be less than the foreclosure sale value. See IRS publications 544, 551, 4681.
So, nothing you really need to freak out over, if you get a 1099-C, simply fill out form 982. If you get a 1099-A, you can practically ignore it unless the property was an investment property of some kind.
EDIT: Incidentally, the form you use for 1099-A is simply IRS 1040, schedule D, but if you have no gain or no reportable gain then you don't need to do anything.
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Thanks to tobee43 for pointing me in the right direction!
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