In the U.S. tax registry, there are different Forms 1099. They all serve the role of “information returns” to the Internal Revenue Service (IRS). In particular, Form 1099 -A (Acquisition or Abandonment of Secured Property) is filed by lenders to report property transferred for mortgage, default or abandonment.
This is an easy document to fill out but complies with a designed structure. If you still don’t know how to obtain the form, how it affects your taxes, and its implications, here we tell you all about it and how to file.
What is Form 1099- A?
Form 1099: A “Acquisition or Abandonment of Secured Property” is an informational document used to notify the Internal Revenue Service of a foreclosure on a property. The form is received when:
- The lender foreclosed and paid some or all of the debt.
- The lender sold the property in a short sale.
- The property has been abandoned or has reason to know of its abandonment.
Since payment of the entire debt represents income, you must use the form to report this income to the Internal Revenue Service (IRS). Issuers should add important sale information such as the date of transfer and the Fair Market Value.
Who must file Form 1099-A?
Lenders, banks and other financial institutions are responsible for filing the information document with the IRS. The main reasons are when the property is sold or transferred, as the result of foreclosure or when abandoned the property.
Form 1099 -A consists of three copies:
- Copy A is filed with the taxing entity.
- Copy B is sent to the property owner.
- Copy C remains a lender’s backup.
If you are in this process and did not receive your copy, request it from your lender. You do not need to include it in your tax return, but we recommend keeping it in your records.
What do I do with the information reported on Form 1099-A?
If you lost a home due to foreclosure, you would receive an emailed copy of Form 1099-A filed by the lender with the IRS. Generally, the document usually arrives by January 31 of each year.
Must use all of the information recorded on the form on Schedule D of Form 1040 to report your income or loss to the Internal Revenue Service. To calculate the gain and loss, you must subtract the tax basis of the home (the purchase price minus any improvements made) from its Fair Market Value. When you are not responsible for a debt, you will use the mortgage’s outstanding balance at the time of foreclosure instead of the Fair Market Value.
You must report the property’s sale price to the IRS on Schedule D with this data. Also, note the same amount on Form 1040, line 7. Can use box 5 of Form 1099- A to determine if you are responsible for the refund. If the lender checked the “Yes” box, they could legally pursue you to collect the remaining amount they did not recover after selling the home. The amount of the “outstanding balance” you must pay will be in Box 2 of your Form 1099-A.
How does Form 1099-A affect my taxes?
In addition to using the information to meet other tax obligations, such as completing and filing Form 1040 – Schedule D, it also means that you have again in income that will be taxed. If you meet these requirements, the IRS does not require taxpayers to report capital gains from a foreclosed property:
- You lived in the home, and it was your principal residence for the last two to five previous years.
- After foreclosure, you earned less than $250,000 and filed an individual return.
- You earned less than $500,000 and filed a joint return
To find the capital gain, subtract the sale price from the purchase price.
Complete Form 1099 -A
If you are a lender and want to know what the form is composed of, or you are a property owner and you will enter this process, we will show you the most important boxes contained in the document.
The left side of the document is intended for the lender’s and homeowner’s personal information, such as names, addresses, tax identification numbers and more. The right side of the form is made up of the following six boxes:
- Box 1: The date when the lender received the property and the day they knew they abandoned the property
- Box 2: Shows the principal balance of your loan, i.e., when the lender acquired it or the value as of the date you abandoned the property
- Box 3: Left blank
- Box 4: Details the Fair Market Value of the property. If this amount is less than the amount reported in Box 2 and your debt is paid off, you may have a payoff debt. In this case, you will receive a Form 1099-C
- Box 5: You must indicate if you are responsible for the debt and if the debt is cancelled
- Box 6: Write the address and description of the property
For years I have studied American finance regulations. All the information in this blog is sourced from official or contrasted sources from reliable sites.
Salesforce Certified SALES & SERVICE Cloud Consultant in February 2020, Salesforce Certified Administrator (ADM-201), and Master degree in “Business Analytics & Big Data Strategy” with more than 13 years of experience in IT consulting.