The 1099-A form is used to report actions related to the acquisition or abandonment of secured property, typically concerning a home sold at auction or a short sale. The mortgage lender will provide you with a copy of this form if an acquisition action was taken on your home due to a legal action for property acquisition. You will need this form to prepare your tax return.
How does the 1099-A form work?
The 1099-A form reports the acquisition or abandonment of secured property, which is usually a home sold at auction or a short sale. The mortgage lender will provide you with a copy of this form if an acquisition action was taken on your home due to the legal action of acquiring the property. You will need this form to prepare your tax return. The IRS may sometimes treat the legal action of acquiring the property as if you had sold your property. You must calculate the capital gain or loss, but there is no “selling price” in this scenario, at least not in the same context as in a regular sale when you might receive cash in hand after the deal. You may also need to report any canceled debt as income.
Example of the 1099-A form
Perhaps you borrowed $150,000 to purchase your home, and then faced some financial difficulties. As a result, you were unable to make your mortgage payments. The lender seizes your property. The IRS takes the position that you received $125,000 as income if you still owed $125,000 at the time the acquisition was made by the lender, and you are no longer obligated to repay it.
Who uses the 1099-A form?
The lending institution is responsible for submitting the 1099-A form to the IRS, and it must also provide you a copy. The lender must provide copies to each borrower in cases where more than one person or entity is responsible for repaying the loan. It is then the borrowers’ responsibility to report that information and their share of the transaction on their personal tax returns.
What to do if you did not receive the 1099-A form?
You should receive the 1099-A form by January 31 of the year following the legal acquisition action. Contact the lender if you have not received it. The institution needs this long time to provide you with a copy, even though the form is not due to the IRS until February 28. You can also contact the lender if you believe the information on the form is incorrect. The 1099-A statement should include the identity and contact information for a person at the institution. You can reach out to this person with any questions.
How to read the 1099-A form?
The 1099-A form is relatively straightforward. The left side of the form contains the contact information for the lender and the taxpayer identification number (TIN), your name, address, and loan account number.
You will find the outstanding loan balance in box 2 on the right side of the 1099-A form. The fair market value of the property appears in box 4. The date of the legal acquisition action is in box 1. This will be used as the sale date.
The form indicates whether the loan was recourse or non-recourse. The loan may have been non-recourse if the lender checked “Yes” in box 5 of the 1099-A form, which says: “Check if the borrower is personally liable for repaying the debt.”
Box 6 is where the lender will describe the property, which often includes the property’s address.
Requirements for reporting capital gain or loss
Any gain – and the legal acquisition action can result in a gain – can sometimes be offset by the capital gains exclusion for a primary residence. This is also known as the “Section 121 Exemption,” and this tax exclusion allows single individuals to realize a gain of up to $250,000 on their personal homes without being subject to capital gains tax. The limit increases to $500,000 for married couples. However, there are several rules that apply to eligibility, such as that you must have lived in the home for at least two of the last five years.
You can
Calculate your profit by comparing the selling price with the purchase price, which is your cost basis in the properties. This information can usually be found in the closing statement you received when you purchased the property. Enter this in Schedule D of your tax return.
Use IRS Form 4797 if the property acquired by foreclosure or short sale is rental or investment. You may need help from a tax professional in this case as you must consider additional factors such as depreciation recapture, incurring passive activity losses, and reporting any rental income and expenses.
Form 1099-A vs Form 1099-C
You may receive Form 1099-C or both Forms 1099-A and 1099-C if the lender forgave any remaining mortgage balance you owed. Forgiven debts reported on Form 1099-C are taxable income.
However, forgiven debts may not be taxable if your debt value exceeds your total assets’ value before the legal action for acquisition. This means you were insolvent, and you should report the forgiven debts only on your tax return concerning the difference between your debts and assets.
Frequently Asked Questions (FAQs)
Is Form 1099-A a type of income?
Generally, no. The only gross income considered is the forgiven debt reported on Form 1099-C if you received both this form and Form 1099-A due to a legal action to acquire your home. But even forgiven debts will not be taxable if you were insolvent at the time of sale.
Will Form 1099-A affect my tax return?
Form 1099-A may affect your tax return in some cases because the legal action for acquisition results in capital gains. You may be able to avoid paying taxes on the capital gains if the home is your primary residence, you lived in it for a total of two out of the last five years, and the gain is less than $250,000 if you file single and $500,000 if you file jointly with your spouse. However, some other rules may apply.
Source: https://www.thebalancemoney.com/what-to-do-with-form-1099-a-3974016
Leave a Reply