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Tough times ahead: Understanding IRS Form 1099-A

September 9, 2023 By Israel Padilla

Everything You Need to Know About IRS Form 1099-A

If you have lost your home to foreclosure or abandoned it voluntarily, you may receive a tax form called 1099-A from your lender. This form reports the details of the property acquisition or abandonment to the IRS and to you. In this blog post, we will explain what Form 1099-A is, why you received it, and how it affects your taxes.

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What is Form 1099-A?

Form 1099-A, Acquisition or Abandonment of Secured Property, is an informational form used by lenders to report the acquisition or abandonment of property that was used as collateral for a loan. The form shows the date of the acquisition or abandonment, the fair market value of the property, the outstanding balance of the loan, and whether you were personally liable for the debt. The lender sends one copy of the form to the IRS and another copy to you.

Why did I receive Form 1099-A?

You may receive Form 1099-A if you have defaulted on your mortgage and your lender has foreclosed on your property or accepted a deed in lieu of foreclosure. You may also receive Form 1099-A if you have voluntarily abandoned your property and your lender has reason to know that you have done so. For example, if you have notified your lender that you are moving out and surrendering the property, or if you have stopped paying property taxes or utilities.

How does Form 1099-A affect my taxes?

Form 1099-A by itself does not necessarily mean that you have taxable income or loss from the property acquisition or abandonment. However, it may trigger another tax form called 1099-C, Cancellation of Debt, which reports the amount of debt that your lender has canceled or forgiven as a result of the foreclosure or abandonment. If you receive Form 1099-C, you may have to include the canceled debt as income on your tax return, unless you qualify for an exclusion or exception.

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Even if you do not receive Form 1099-C, you may still have to report a gain or loss from the disposition of the property on Schedule D of your tax return. The gain or loss is generally calculated by comparing your adjusted basis in the property (usually what you paid for it plus any improvements) and the amount realized from the disposition (usually the fair market value of the property or the amount of debt canceled, whichever is greater). If the property was your main home, you may be able to exclude up to $250,000 ($500,000 if married filing jointly) of the gain from your income.

How to report Form 1099-A on my tax return?

If you receive Form 1099-A, you should keep it for your records and use it to fill out other tax forms that may be required. For example, if you also receive Form 1099-C, you should use Form 982 to report any exclusion or reduction of the canceled debt income. If you have a gain or loss from the disposition of the property, you should use Form 8949 and Schedule D to report it. You may also need to use other forms depending on your situation, such as Form 4684 for casualties and thefts, or Form 8828 for recapture of federal mortgage subsidy.

To illustrate how to report Form 1099-A on your tax return, let’s look at some examples:

  • Example 1: You defaulted on your mortgage and your lender foreclosed on your property in January 2023. The fair market value of the property was $200,000 and the outstanding balance of your loan was $180,000. You were personally liable for the debt. Your lender sent you Form 1099-A showing these amounts. In March 2023, your lender also sent you Form 1099-C showing that they canceled $20,000 of your debt. You bought the property for $220,000 and made $10,000 of improvements. The property was your main home.
  • Example 2: You abandoned your rental property in December 2022 and notified your lender that you were giving up the property. The fair market value of the property was $150,000 and the outstanding balance of your loan was $170,000. You were not personally liable for the debt. Your lender sent you Form 1099-A showing these amounts. In February 2023, your lender also sent you Form 1099-C showing that they canceled $20,000 of your debt. You bought the property for $200,000 and made $5,000 of improvements. The property was not your main home.
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In Example 1, you would report the following on your tax return:

  • On Form 982, you would check the box for “Discharge of qualified principal residence indebtedness” and enter $20,000 on line 2. This would exclude the canceled debt from your income.
  • On Form 8949, you would report a sale of your property with a sales price of $200,000 (the fair market value) and a cost or other basis of $230,000 (what you paid plus improvements). This would result in a loss of $30,000.
  • On Schedule D, you would report the loss from Form 8949 and enter zero on line 7. This is because you cannot deduct a loss from the sale of your main home.

In Example 2, you would report the following on your tax return:

  • On Form 982, you would check the box for “Discharge of indebtedness to the extent insolvent (not in a title 11 case)” and enter $20,000 on line 2. This would exclude the canceled debt from your income to the extent that you were insolvent (your debts exceeded your assets) immediately before the cancellation. You would also reduce your tax attributes by $20,000 on Part II of Form 982.
  • On Form 8949, you would report a sale of your property with a sales price of $170,000 (the amount of debt canceled) and a cost or other basis of $205,000 (what you paid plus improvements). This would result in a loss of $35,000.
  • On Schedule D, you would report the loss from Form 8949 and enter it on line 7. This is because you can deduct a loss from the sale of a rental property.

Where can I find more information about Form 1099-A?

If you have questions about Form 1099-A or how it affects your taxes, you can find more information on the IRS website. You can also consult a tax professional or use a tax software program that can guide you through the process of reporting Form 1099-A on your tax return.