Form 1099-A & Form 1099-C Problems


This post is in: Business
52 Comments

08-11-2010-1

If you’ve recently gone through a foreclosure, deed-in-lieu of foreclosure, short sale or loan modification, you’re probably feeling pretty beat up and drained. It’s an arduous process that the banks seem to prolong as much as possible.

I wish I could tell you that you’re through with the problems from the upside down real estate you just cleared up.
There’s one more issue – taxes.

Yesterday we talked about the three steps for your taxes you need to do if you’re walking away from real estate. Then once you’ve determined what should happen, let’s talk about what might happen.
That’s because the lenders are notorious for not following the rules.

If you have property picked up in foreclosure, you’re supposed to get a Form 1099-A. You’re lucky if they even prepare a Form 1099-A (for some reason, a lot of the lenders our readers have dealt with don’t see to even understand the basic rules for a foreclosure). And then, there’s a good chance that they will mail it to the address of the property that isn’t yours anymore

If you had a property foreclosed on or did a deed-in-lieu-of foreclosure, you should get a Form 1099-A by January 31st of the year following. If you don’t get one, call them. You may find that they refuse to talk to you unless you bring the note current. Or you might find that they think they don’t owe you a Form 1099-A.
In both cases, they’re wrong, but what are you supposed to do?

  • PROBLEM: No Form 1099-A, and there should have been one.
    Talk to an EXPERIENCED tax professional first to verify you really should have received a Form 1099-A.

    If you should have, and didn’t, contact the lender. Hopefully they can get you a copy out right away.

    If they won’t give you a Form 1099-A and they should have, really isn’t anything to report unless there is Cancellation of Debt. (next item) BUT make a note of it in an attached statement to your tax return. If there’s reporting you should have done and didn’t or couldn’t because they didn’t do what they were supposed to do, make sure the IRS and your state are on notice that it’s not your fault.

  • PROBLEM: Form 1099-A issued with wrong information or in error.
    If you get a Form 1099-A that’s got bad information, contact the lender. If they won’t issue you a new one, the IRS says you’re supposed to call them.
  • PROBLEM: Form 1099-A issued, but no Form 1099-C.
    If you think you should have gotten a Form 1099-C (because you had Cancellation of Debt) and didn’t, contact the lender. If they won’t give you one or you get the run-around, then one of three things has happened:

    (1)You didn’t really have Cancellation of Debt (COD).

    (2)The lender knows you have a Form 982 exclusion.

    (3)The lender doesn’t know what they’re talking about.

Of all of those, I think #3 is the one I hear about the most.

If you and your experienced tax/legal advisor believe that you did indeed have COD, then report the income as other income or on Form 982 using your estimate of Fair Market Value or the amount reported on Form 1099-A.

Got a question? Leave a comment here. We’re covering Tax Strategies for Real Estate Investors this week – how to pay less tax in good markets and in bad.



52 Comments

  1. Megan Hughes says:

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  2. Heather says:

    What would you do if the lender issues a 1099-C for nonrecourse debt and refuses to correct it? If you include it on Line 21 (to minimize audit risk), is there somewhere else you could “back it off”? Is not reporting it at all and including a statement sufficient? The IRS just keeps insisting that it’s the lender’s responsibility to correct it.

  3. Darren D. says:

    Hi Diane –

    Glad I stumbled upon your site -many of the inquiries and stories here are similar and very helpful.

    Short sold a rental property (used to be our primary residence) in Nov. 2010. My understanding is that you have to have lived in it for 2 out of the past 5 years to take advantage of the Mortgage Forgiveness Act and we don’t qualify.

    We were told by BoA we would be receiving a 1009-C but have yet to receive one.

    I do my taxes myself and have for the past 12 years on TurboTax and am fairly confident things will work out. I completed our returns and just skipped the rental property sale part and the 982.

    Can it be assumed that we should get back what is estimated as the 982 will cancel out the 1099-C? Right now TurboTax is calculating a large loss.

    I’m curious what will happen when I enter the 1099?

    And what if they don’t send me the 1099? I’ve been hounding them already!

    Thanks!

  4. Diane Kennedy says:

    Donna,
    The question for you is whether the rental had converted your primary residence into a rental property. The law says if you had a temporary absence (up to 2 years) then it would still be considered a primary residence.

    If this is a primary residence, do nothing with the Form 1099-A. If/when you get a Form 1099-C, you’ll qualify for the Form 982 exclusion, just make sure your tax preparer knows how to properly prepare that for you.

    If it’s a rental, you’ll need to file the disposal on Form 4797. I think it will be a loss, though, not a gain. Most people had property go down in value, not up.

  5. Donna Gough says:

    I find it interesting that all of us that have problems with 1099-A or -C have situations that are just enough different that the responses don’t fit our situation. Ours is we lived in our primary residence for 11 1/2 years and then moved. We rented the house out for 2 years (at a loss) because we couldn’t sell it. After 2 years our renters moved out suddenly and we couldn’t rent it for anything like what our mortgage was so we put it up for short sale. We had a short sale pending but BOA kept stalling so when we got the offer of deed in lieu we took it. We just received a 1099-A and our FMV is about $20,000 less than the principal balance outstanding. Box 5 is Yes. Do we have to report this on 4797 as income? And what happens if we get a 1099-C next year?

  6. Diane Kennedy says:

    Dianne says a’Received a 1099-a on a rental property that was one day shy of closing on a bank approved short sale(so much for lenders claiming to want to help). Anyway, FMV is more than outstanding balance and I am liable for repayment. I have been told that since the FMV is more that I probably won’t get a 1099-c and that this is
    just for informational purposes only. Do I need
    to file this 1099-a? And if so, how do I determine
    the adjusted basis? Is that the original purchase
    price plus any re-fi’s or what was in box 2? Thanks in advance.’

    The Form 1099-A is used to report the disposal of the property. The instructions for the form say you can use either the loan balance or the FMV, whichever is less. However, we’re finding that a lot of lenders are using crazy values for the Form 1099-A. Is your number fairly accurate?

  7. Diane Kennedy says:

    Jeremy, it sounds like this is a primary residence foreclosure (was your residence off and on for 2 years prior to foreclosure). Assuming the debt was qualifying debt, you’ve got a primary residence exclusion.

    Nothing to report with the Form 1099-A. If you do get a Form 1099-C, use Form 982 to report the exclusion.

  8. Jeremy says:

    I bought a home in 2004 and rented it out for a couple years, but going through my divorce, I have lived in the property off and on for the past couple years. My divorce was final in Jan 2011 and I was foreclosed on 4/2010. I received a 1099-A and wondered what my obligations are. Owe $97K FMV $65K…Do I need to report anything and this is through BOA.

  9. dianne says:

    Received a 1099-a on a rental property that was one day shy of closing on a bank approved short sale(so much for lenders claiming to want to help). Anyway, FMV is more than outstanding balance and I am liable for repayment. I have been told that since the FMV is more that I probably won’t get a 1099-c and that this is
    just for informational purposes only. Do I need
    to file this 1099-a? And if so, how do I determine
    the adjusted basis? Is that the original purchase
    price plus any re-fi’s or what was in box 2? Thanks in advance.

  10. Diane Kennedy says:

    Angela, you may need to check with an attorney on that. If you do have the Form 1099-C already and they have forgiven the debt, then the issue is just tax and I’ll answer that in a sec. But my concern is what if you don’t have the Form 1099-C. I suspect that the lender may be able to go after you as well as other properties within the LLC. But please check on that.

    As far as the Form 1099-C, the COD income would flow through to whomever gets the 1099-C. If it’s the LLC, then the LLC reports it and it flows through to the members of the LLC. If it’s you, then it’s just reported by you.

  11. Angela says:

    Question on Deed-in-lieu 1099C when the property is deeded to an LLC. If I am the guarantor on the loan, but the property has been deeded to an LLC of which I am a Manager (NOT a Member Manager) will the Deed-in-lieu of a property affect the LLC or any add’l properties held by the LLC in any way? The bank service rep said “no”, but you never know if they know what they are talking about! And, would the 1099 flow through the LLC’s sole Member or back to me personally? Any insight would be appreciated. THANKS!

  12. Diane Kennedy says:

    Oh, Judy, thanks for the clarification. I did misunderstand. No, you don’t have to pay double! (One set for each of you). Since you aren’t married and thus filing a married filing jointly return, you’ll need to decide who is taking the hit for the tax and in what amount. (ie, is it 50/50, one person takes all, or some other combination) Report on both your returns what happened. ie… Judy says something like, My partner Joe Smith SS#123- etc and I both received Form 1099-Cs for the full amount of debt cancellation. I have reported 50% of the amount on this return. (If that’s what you decide) Fiancee say, My partner Judy Brown SS# 123- etc. and I both received…

    Key is to disclose what you’re doing on both returns and provide the social security numbers so they can link back and verify.

  13. Judy Bavekt says:

    Thanks for your reply Diane. Guess I should re phrase. We each received two 1099-c’s totalling the write off amount, like you said, roughly, a total of four 1099-c’s. My question is why are we both getting them? Shouldn’t we each have half the amount if they are going to send us each a set? Now it looks to the IRA like we each owe that amount which is not right, I don’t think because it is double. In your experience, will BOA reissue? Thanks again, Judy

  14. Diane Kennedy says:

    Judy, quick math here:

    Financed $131,400, sold for $62K – write off roughly $70K. You received Form 1099-Cs totalling $66K.

    The numbers obviously are rough here, so I’m inclined to think the Form 1099-Cs are correct. They are reporting the amount forgiven that is roughly equal to the amount forgiven.

  15. Judy Bavekt says:

    My fiance and I live in Fl & purchased a rental condo in 2005 financing $131,400 with Countrywide with a first & second (their suggestion… to avoid PMI, I think.) We agreed to short sell it last Spring (2010) for $62,000. Yesterday we each received two 1099-c’s in the mail for $10,590 and $55,110 posted in box 2 (Box 7 is 0 on all). These four add up to the total amount financed!! If this is wrong, do you know the best way to get (assuming now) B of A to correct the 1099c? What should I be looking at to determine what is right? The difference between the short sale and financed $? Thank you for any help!

  16. Diane Kennedy says:

    Hi Jen:

    Do you ever wonder about the fact that most of us used to just assume that the mortgage calcs we got from lenders was right? Doesn’t seem like much anything is right on these forms they give these days!

    Because it’s your primary residence, you may have an exclusion on the COD income if this is original debt (ie, you didn’t earlier do a cash-out refi). Check into that, otherwise the $84,945 will be taxable unless you meet another exemption. You will need to file a Form 982 if that’s the case.

    It seems interesting that the amount of COD would be approximately $82,000 ($112,000 less $30,000 sales price), and they show $84,945. The difference could easily have been their costs and late fees they piled on. I wonder if that’s what they have done – just netted the two in order to come up with the COD amount. Of course, it’s wrong to report it that way.

    At this point, I would be tempted to just go with what they have because it’s probably unlikely that you’d get them to change it. And, it doesn’t seem that the net effect is wrong – just the way they reported it.

  17. Jen says:

    Hi Diane,

    I did a short sale on my primary residence in Aug 2010. I just received a 1099-c form in the mail today (Feb 8). I owed about $112,000 on the home and the short sale was approved by B of A for $30,000 cash. So the 1099-c form states the debt canceled was $84,945 and box 7 (the FMV box) states $0. Should there be a value in box 7 of 30,000? Thanks

  18. Diane Kennedy says:

    Shelly says: “My 1099A for the First loan states this..
    2)286,217.71 4)307,136.15 (no clue how they get this when they sold it for $145,000) and Box 5) NO, borrower is not personally liable

    1) So which box do I use for disposition value since I am not personally liable? box 2 or 4..which there is no way box 4 is correct since it sold for $145,000

    2) What do I use for the second loans value since I would need that amount to equal the total value of property for disposition? Should I try and get Bof A to give me a value over the phone as of the acquisition date?”

    I’m guessing that this is an investment property. If it’s a primary residence, disregard the following advice.

    The Form 1099-A gives you the information to report for the disposal. The instructions for Form 1099-A state that you should use the loan amount or the FMV, whichever is less. So, in this case if the loan amount is the ‘sales price’ you would then subtract basis to come up with gain/loss on the disposal. If the FMV is off by a lot, though, you may want to contact the lender and tell them it’s incorrect.

    This is the type of thing you probably will want to discuss with your tax preparer. The second loan, for example, wouldn’t give you a Form 1099-A if they didn’t get the property. But they may be about to hit you with a Form 1099-C for Cancellation of Debt. Likewise, the first may be sending you a Form 1099-C as well.

  19. Shelly says:

    Funny irony… I get home today to a 1099A for the first loan… I called and they are saying the second loan is still open (due to litigation?) so I am not anticipating a 1099 for that. Therefore…

    My 1099A for the First loan states this..
    2)286,217.71 4)307,136.15 (no clue how they get this when they sold it for $145,000) and Box 5) NO, borrower is not personally liable

    1) So which box do I use for disposition value since I am not personally liable? box 2 or 4..which there is no way box 4 is correct since it sold for $145,000

    2) What do I use for the second loans value since I would need that amount to equal the total value of property for disposition? Should I try and get Bof A to give me a value over the phone as of the acquisition date?

    Thanks so much…your forum is the best I have found!

  20. Brian says:

    Diane,
    This is Brian again. You had asked about the FMV being reasonable.
    How do i find out what it actually sold for?
    Just call the lender or like Shelly said and check public records?
    We had it up for sale for $169,000 and since it was a condo, other condos next door and nearby which are basically the same units had sold for $140-150,000 or even more. The FMV of $118,000 seems very low.
    So do i use a Schedule D?

    Thanks for your time,
    Brian

  21. Diane Kennedy says:

    Shelly says “It is Feb 7th and I still have not received a 1099 from Bank of America on a property they foreclosed on in 1/29/2010. Similar situation to Brian. Bought it as primary residence, moved and turned into rental property approximately three years ago. Also had primary and secondary as a purchase money loan in CA with no refinancing.

    A few questions..
    1) I need to dispose of this asset on my taxes since it was a rental property but no 1099 to give me values. What do I use if I can not get these? (I have called and just get transferred in circles)
    2) If I do get them should I use Box 2 or Box 4? I have seen it said both ways, does it depend on if non-recourse or recourse loan?
    3) If I only get a 1099 for the 1st loan what do I use for the second loans value if I am supposed to use box 2?”

    At this point, the real question is whether you’re going to get a Form 1099-A or not. You either need to decide that the fact you haven’t gotten one yet means you won’t and proceed along that line or keep calling until you get someone to give you a Form 1099-A or at least a real answer.

    Once you have that, please write back and we can go through what to do then. Otherwise all the possible “what ifs” will drive you crazy.

  22. Shelly says:

    Another comment on above post… bank foreclosed on 1/29/2010 and just say public records that they sold it in August of 2010 for $145,000. So if I get nothing from them would I use that value as FMV? But still same question, would I use FMV (box 4) or what was owed (box 2) for disposition value?

  23. Shelly says:

    Diane,

    It is Feb 7th and I still have not received a 1099 from Bank of America on a property they foreclosed on in 1/29/2010. Similar situation to Brian. Bought it as primary residence, moved and turned into rental property approximately three years ago. Also had primary and secondary as a purchase money loan in CA with no refinancing.

    A few questions..
    1) I need to dispose of this asset on my taxes since it was a rental property but no 1099 to give me values. What do I use if I can not get these? (I have called and just get transferred in circles)
    2) If I do get them should I use Box 2 or Box 4? I have seen it said both ways, does it depend on if non-recourse or recourse loan?
    3) If I only get a 1099 for the 1st loan what do I use for the second loans value if I am supposed to use box 2?

  24. Diane Kennedy says:

    Brian, I’m actually surprised that B of A went ahead and foreclosed. They have stopped foreclosures in a number of states now due to all of the mistakes!

    It sounds like you have legitimately created a rental property here. That means you wont’ get the exemption for primary residence if you get a Form 1099-C. But B of A/Countrywide was one of the companies that at least in California has said that they won’t be issuing Form 1099-Cs because they received federal funds. The opinion, at least for now, is that since they received money for the losses, they have no debt to forgive. HOWEVER, B of A is notorious for not getting things right, even to the extent of foreclosing on a house that didn’t even have a loan on it. So, take that all with a grain of salt.

    For now, I would report a loss on disposal of the property. Is the FMV that they are reporting reasonable? If so, I’m guessing you have a loss you can take on Form 4797. If you do get a Form 1099-C in 2011 or later, you may need to come back to adjust that loss. Meanwhile, I would go ahead and take it because the property was disposed of in 2010.

    (Just an FYI – if the property was a primary residence still, there would be no loss available. If the property had not been rented, it would be a capital loss and reported on Schedule D).

  25. Brian says:

    Thanks for this great website.
    We bought a house in 2003 as our primary residence for $220,000 and later refinanced and took out a second for $30,000. I got relocated for a new job in 2007 and had to rent out the house. As of 2009 and 2010 we tried everything we could to try to keep the house but we were losing $600 a month from rent vs our mortgage payment. We tried to refi but they said no because it was underwater. They said to try a loan modification, but we had to miss 3 payments. We finally did miss 3 payments, but then when we spoke to the loan modification people they said we could not to a loan mod because it was not our primary residence. BofA is HORRIBLE. So then we were screwed. We tried for 1 year to do a short sale, had roughly 10 offers and BofA denied every one. It was up for sale for $169,000 and we owed $212,000 on the 1st and $25,000 on the second. It ended up foreclosing on 12/28/10. Merry Christmas. We just now received a 1099A.
    Box 2 is 212,000
    Box 4 is 118,000
    Box 5 is YES
    Will we receive a 1099C?
    Is this considered an investment property even though it was our primary when we bought it?
    I would think so because we rented it for 3 years. We should be able to write it off as a loss, correct?
    What form?
    Thanks,
    Brian

  26. Debbie says:

    Hello… This is the most informative blog I have seen yet!!

    My husband just received a 1099-A for a property that he stopped making payments on in 2009. The tenants stopped paying rent and moved out. The house needed so many repairs that we could not afford to keep up the mortgage and repair the house. It was in bad shape and it was even hard to get homeowners insurance on it. The property was a residential rental property. This is what is on the form…

    Box 1 – 3/11/10
    Box 2 – 68,316.35
    Box 4 – 72,000
    Box 5 is checked yes.

    I am trying to figure out what we need to do with this information. I know there is a possibility that we will get a 1099-C later. I need to know what forms we need to fill out to send this to the IRS or is there anything we need to fill out. Is the 1099-A for informative purposes only? I have read publication 544 and 4681 and have searched and searched for informative but cannot find a definitive answer about this particular form. It seems that 1099-C is something that requires reporting. What should we do?

    Do you actually report the capital gains/loss now or wait until we get the 1099C?

    Thanks so much!!

  27. Diane Kennedy says:

    Maria says: “i receive form 1099-c, because i had a short sale on my primary home that I lived for the past five years, two family home, i receive income rental. i want to know if i have to pay any taxes on the debt forgiveness, and what forms to use..i heard about form 982, is this the form that i will have to report ?? please let me know”

    Maria, if you lived in part of the 2 family home (or duplex), then part of the property is related to your primary residence, part rental. That means you have two different set of rules for the Form 1099-C. For half (assuming the property was equal values for residence and rental), you’ve got the primary home exclusion, at least for federal. So no tax there. For the other half, you have a rental property. I’ll assume you also had a loss on disposal of the property. That loss can offset the COD income from the Form 1099-C.

    You will need to file Form 982 to show the exemption to the tax for the primary residence portion. Also, if you’re insolvent or filed bankrtupcy, you’ll have an exemption on the COD income as well.

  28. Diane Kennedy says:

    marine1957 says: I recieved a 1009-A from IndyMac for my foreclosed property (primary residence)in AZ. I had two mortagages on the property . The first for $608,000 and the second for $109,000 . The 1099-A that I recieved only accounts for the primary mortgage. The 1099-At list’s the balance at $608,000.00 and fair market value at $452,108.30
    What are the tax implications for me? And what happened to the 2nd mortgage?
    Background:
    We were intially accepted for a loan modification and sent in the $funds to start the process ,..only to be denied 30 days later due to lost paperwork.
    Looking for guidance,..this whole process has been a nightmare.”

    For what it’s worth, the nightmare hit a lot of people over the past few years. You’re not alone.

    The 2nd mortgage didn’t take the property, so they wouldn’t have a Form 1099-A to issue. The question is whether they are going to pursue you for the uncollected liability. If the 2nd wasn’t related to the original debt, it’s my understanding that in AZ they could do that.

    The next step, at least as it relates to taxes, is to see if you get Form 1099-Cs. I don’t think IndyMac will send it to you on the 1st because it’s your primary and you wont’ have either AZ or fed tax. The 2nd mortgage is the question there as well. If they write it off, they may send you a Form 1099-C.

    Until then, though, there really isn’t anything you can do about it and just wait.

  29. marine1957 says:

    I recieved a 1009-A from IndyMac for my foreclosed property (primary residence)in AZ. I had two mortagages on the property . The first for $608,000 and the second for $109,000 . The 1099-A that I recieved only accounts for the primary mortgage. The 1099-At list’s the balance at $608,000.00 and fair market value at $452,108.30
    What are the tax implications for me? And what happened to the 2nd mortgage?
    Background:
    We were intially accepted for a loan modification and sent in the $funds to start the process ,..only to be denied 30 days later due to lost paperwork.
    Looking for guidance,..this whole process has been a nightmare.

  30. maria says:

    i receive form 1099-c, because i had a short sale on my primary home that I lived for the past five years, two family home, i receive income rental. i want to know if i have to pay any taxes on the debt forgiveness, and what forms to use..i heard about form 982, is this the form that i will have to report ?? please let me know

    thanks

  31. Diane Kennedy says:

    Michael says: “We live in California and have a first and second on our home. My wife was laid off and we got behind in our mortgage payments. We have been trying to work out a Modification on our first and then we would deal with our 2nd loan. We just received a 1099-C from our 2nd lien holder? What do we do with this and do we have to pay taxes on this amount? This is our principle residence and we are still in the home trying to work out a modification with our 1st lienholder.”

    It looks like the lender in 2nd position just went ahead and wrote it all off.

    Now might be a good time to talk about what qualifies for the primary residence COD income exclusion:

    To qualify for the Qualified Real Property Business Indebtedness (QRPBI) exclusion, the debt must be “qualified real property business indebtedness.”

    IRC §108(c)(3) states that this phrase means indebtedness which —
    A. Was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by
    such real property,
    B. Was incurred or assumed before January 1, 1993, or if incurred or assumed on or after such date, is qualified acquisition indebtedness, and C. With respect to which such taxpayer makes an election to exclude the income.

  32. Diane Kennedy says:

    Iliana says: “I have a question about 1099-C. We had a short sale on 2/2/2010, it was our primary home. I have been trying to contact the lending company but they will give me the run around. We need to file asap. Can I estimate the amount of the deficiency? the loan amount was for 360K and the house sold for $215K. We did not buy the house for 360K though, this was a refi, but on the credit report it shows a write off for 360K. Please help, Thank you!”

    Iliana, I wasn’t sure if you had received the Form 1099-C or not. If you haven’t received a Form 1099-C, don’t worry about it. If you did receive it, then you will need to report it. Since you said you had a refinance but I’m not sure if you had a cash-out refi, which would indicate some debt written off that would be taxable.

    I hope you can join us for Saturday’s teleseminar. We’ll be covering this and other information. It’s Sat 2/5/11.

  33. Diane Kennedy says:

    Pat said: “First of all I would like to thank you for hosting a Teleseminar on 1099-A C.

    I have 3 investment properties that I bought in 2005. I filed for Ch 7 bk and was discharged. I have not received 1099 A or C yet on any of the property. But if in case I do receive a 1099A for the property but no 1099C, then for this tax year I would have a larger loss on 1040 as the FMV on the property would be less than what I bought for. The reason being that it is the investment property, I have all the losses reported on form 4797 and carried over to form 1040 line 14. This will offset almost all my wages and will get all federal taxes back. Now if I receive 1099C later in 2011 which I will report in 2012, this debt is already excluded from my income due to Ch7. This does not make sense to me as I am taking all the loss this year because of 1099A and my COD gets excluded due to Ch 7. Is this correct? If so there is a big loophole here.”

    Pat, you’re absolutely correct that this would be a loophole, but the IRS is on to it already. If you file for the exemption due to bankruptcy or insolvency, you have to then adjust the basis. So, let’s say you took the loss in 2010, get the COD in 2011. You will need to amend the prior year (2010) to reduce the basis in the property by the amount of COD.

    Just while we’re talking a little philosophically about it, though… I’m wondering what’s going to happen if you receive the 1099-C and take the insolvency exemption years after you originally filed with the loss. And that previous year is now close (in other words, you can’t amend). Now that will be an interesting year.

  34. Pat says:

    Diane,
    First of all I would like to thank you for hosting a Teleseminar on 1099-A C.

    I have 3 investment properties that I bought in 2005. I filed for Ch 7 bk and was discharged. I have not received 1099 A or C yet on any of the property. But if in case I do receive a 1099A for the property but no 1099C, then for this tax year I would have a larger loss on 1040 as the FMV on the property would be less than what I bought for. The reason being that it is the investment property, I have all the losses reported on form 4797 and carried over to form 1040 line 14. This will offset almost all my wages and will get all federal taxes back. Now if I receive 1099C later in 2011 which I will report in 2012, this debt is already excluded from my income due to Ch7. This does not make sense to me as I am taking all the loss this year because of 1099A and my COD gets excluded due to Ch 7. Is this correct? If so there is a big loophole here.

  35. Diane Kennedy says:

    Bob, since the property was in service, you’ll have a loss on the disposal. That loss can be used to offset COD income. Of course, the basis is adjusted by recaptured depreciation. If you have any suspended losses, you’ll be able to take those now as well.

  36. Iliana Cuadros says:

    Hello Diane,

    I have a question about 1099-C. We had a short sale on 2/2/2010, it was our primary home. I have been trying to contact the lending company but they will give me the run around. We need to file asap. Can I estimate the amount of the deficiency? the loan amount was for 360K and the house sold for $215K. We did not buy the house for 360K though, this was a refi, but on the credit report it shows a write off for 360K. Please help, Thank you!

  37. Bob says:

    Here’s one for you Diane.  I want to short sell an underwater residential rental condo in San Diego.  Bought at $374k, outstanding mtg balances are $299 1st, $37k HELOC.  FMV and expected short sale price are $250k. Owned for 3 years (as rental), taken depreciation, expenses and rental loss on taxes each year. Still need to calculate adj basis.  I am solvent but not enough to cover the outstanding debt, obviously.

    Would I be able to offset the $86k COD with any losses on the short sale to eliminate/reduce the taxes on the $86k?

  38. Diane Kennedy says:

    Got a question on Form 1099-A or Form 1099-C? Please join me Saturday, February 5 at 9 am PST, Noon EST for a FREE Teleseminar: You Got a Form 1099-A (or 1099-C) – Now what?

    Register at http://www.DianesSeminars.com

  39. Diane Kennedy says:

    Susan, we’re hearing similar stories from a lot of people.

    One of the things to discuss with your CPA is whether this is a 2nd home or a rental. If it’s a rental, then you can take advantage of a loss on disposition. If it’s a 2nd home, you can not.

    As far as the protection for the property, this is definitely something to disucss with your AZ attorney. I know that your principal residence is protected for original indebtedness (but not refinances or HELOCs). I was not aware that protection was also available for your 2nd home. But again, talk to your attorney. He/she will know best.

    The Form 1099-A just shows that they have taken the property. The Form 1099-C is the one that reports COD income. If they come after you, you wont’ have COD income. It only occurs if they forgive the debt. Since it’s not a primary residence, you will pay tax on that unless you are insolvent or declare bankruptcy.

    This is where it is important to note whether it’s an investment property or not. If it is an investment property that is in service, you have a loss to offset that COD income.

    Complicated, you bet. Make sure your CPA is up not just on AZ law, but the rules governing real estate in this case.

  40. Susan says:

    Hello Diane,

    I owned a second home (that was used for a vacation, business and rental)in Aizona. When we purchase we put down 15% In July 2010 the property was foreclosed.

    I received a 1098 Mortgage Interest Statement for $16,312.03 and today I also received a 1099-A. Principal Outstanding Balance $392,469.97 FMV is $200,000.00 form the paperwork they sent me. They also have box #5 checked Yes.
    HELP!!!!

    When the bank took the property back they had it listed for 435,000.00+ at the court house steps. But now have it valued at 200k

    I have an appointment with my CPA on Wednesday. From what I was told by an attorney in Arizona. Arizona is a Anti Deficiency State non judgement deficiency state.

    I don’t know what to do or what I need to file. I have heard of forms 982, 3949A, 4797, 1099c… Normally I receive a refund when I do my taxes. Will I be at risk of losing my return do to the foreclosure????

    BTW: I’m filing my taxes in NY and don’t know if my CPA will know all the laws for AZ….

    Thanks For Your Help!

  41. Joe says:

    Diane (This is a re-posting not sure you can understand the first one),

    From previous posting I THINK I understand that since I received a 1099C for a short sale on my rental property I will (I have no form 982 exclusions nor any like kind exchanges):

    1) Include the 1099C income on form 1040 as Misc Income. I believe this amount will be the amount FORGIVEN $90,000.

    2) On form 4797 I calculate the gain/loss on the sale a follows:

    Adjusted Basis:
    Purchase Price 220,000
    Less Depreciation -26,000
    Less Amount forgiven (?) -90,000
    Equals to the adjusted basis 104,000

    Short-sale price 80,000

    Generates a loss of 24,000

    So my net is $90,000 income less 24,000 loss = a net gain of $66,000?

    3) I am not a Real Estate Professional does that make a difference?

    Not sure is any or all of the above is correct.

    Thanks

  42. dan says:

    Will the IRS find out you might have income tax liability if the debt collection agency the bank sold the debt to never file 1099C? Is the bank’s responsibility to file or whoever is the last owner of the debt? Should the debt collection agency file the difference between the original balance and the settled amount or should it be the difference between the amount they purchased the original debt and the settled amount?
    thanks a lot for your help!

  43. Joe says:

    Diane,

    From previous posting I THINK I understand that since I received a 1099C for a short sale on my rental property I will (I have no form 982 exclusions nor any like kind echanges):

    1) Include the 1099C income on form 1040 as Misc Income. I believe this amount will be the amount FORGIVEN ($90,000) – correct?

    2)On form 4797 I calculate the gain/loss on the sale a follows:

    Adjuted Basis:
    Purchase Price 220,000
    Less Depreciation -26,000
    Less Amount forgiven(?) -90,000
    ———-
    Adjusted Basis 104,000

    Short-sale price 80,000
    ———–
    Loss from 4797 24,000

    So my net is $90,000 income less 24,000 loss = a net gain of $66,000?

    3) I am not a Real Estate Professional does that make a difference?

    Not sure is any or all of the above is correct.

    Thanks

  44. Chris Farmand says:

    Diane,
    The 1099-C is important for my primary bc my client used some of the refi money to pay off their truck. I am reporting the 1099-A for the rental, which reports a gain due to the number of refi’s my client did. (soap box begin) My client is a poster victim of the predatory lending practices that were happening 2-3 years ago. (soap box end)
    Its a giant mess, but I am happy to help her.

  45. Renee Rogers says:

    Will you post a detailed blog on the foreclosure/short sale of investment properties? So many of the laws and loopholes are for owner-occupied homes. As an investor, we are being hit rapidly these days with tenants losing their jobs and not paying the rent. That, combined with the fight to keep our OWN incomes and mortgages paid, makes it practically impossible to keep current on the rental mortgages. What are the consequences on a rental foreclosure? We may even need a helpline!

  46. Diane Kennedy says:

    I’m moving a question that we just received on a March 2010 blog.

    From Michelle:

    “While in Ch.7 in late 2008, our lender took our two investment properties out of the bankruptcy and then took them back as Deed-in-Lieu’s. We then received 1099-A’s for 2009. The amounts in the “Balance of principal outstanding” & “Fair Market value of the property” had the same amounts, resp., on both 1099s (although the FMV not nec. actually true, we did put large down payments on the properties). We did not receive a 1099-C. Did the way they reported on the 1099-A infer that they won’t send 1099-C’s? I don’t see how they could, but if they did eventually send 1099-C’s, would I still be able to deduct any debt cancellation with the bankruptcy exclusion (or the insolvency one)? And thus amend my 2009 return?”

    In your case, it sounds like you have no COD because they are saying the FMV = debt.

    However, your basis is bigger. That’s because you put some money down. If you didn’t report the loss on the disposition of the property, I would amend to do it if the amount is large enough to warrant the extra expense.

    For example, let’s say you bought a house for $150,000 with $50,000 down. Your loan is $100,000 and it’s now worth $100,000. You have no COD income, because the bank got something worth the amount of the loan.

    You then have a ‘sale’ of a property at $100,000, but your basis is $150,000. So, you have a loss of $50,000 you can take.

    These are very simple numbers, though. On the property disposition, you also need to take into account recapture of depreciation and suspended real estate losses.

  47. Diane Kennedy says:

    Chris, Thanks for pointing out the Form 3949-A, to use if you have an issue with the value.

    For everybody else reading this thread – the bank really didn’t follow the rules.

    (1) Form 1099-A – if it’s a foreclosure on the primary, then yes, that makes sense. A Form 1099-C generally isn’t issued on a primary, because it’s wiped out. Although you do need to make sure the state is compliant.

    (2) Form 1099-A on rentals, no Form 1099-C. That’s quagmire. It could be because the lender intends to come back on it. Or it could because they don’t intend to do anything. Meanwhile, you’ve got a disposal of a property that should get reported. And it doesn’t help that the bank won’t call back.

    (3) 3 more coming…. who knows what position the bank will take.

    Chris, keep us posted. I think personally (for what it’s worth) I might take the position that there is COD in 2010 and offset it somewhat with loss on a sale on Form 4797.

  48. Chris says:

    oh boy Diane, what a great topic, and very current for me. I am working with a client who received the following:
    1) 1099-A&C on her primary
    2) 1099-A on one rental, no 1099-C yet
    3) has three other rentals going down this year…yikes.

    We are filing her returns, but we are contesting the FMV with form 3949-A, per the IRS. So as it stands, primary COD will be wiped out by Obama. Gain realized on rental 1099-A will hit this year, COD on rental in 2011? We are waiting, BOA will not call her back….SHOCKER

    thanks for the topic

    chris