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bbnb09 · Feb 2, 2009, 06:21 PM

My house was foreclosed on in 2008 and I have received a form 1099-A. Do I owe taxes on the amount in box 4, "fair market value"? If so am I having to claim this as income-tax? 20% of box 4 would be over $30,000, ouch!

MukatA · Feb 3, 2009, 12:19 AM

Did you receive form 1099-C for debt cancellation? Debt cancelled is reported as income.

1. You may have to report sale on Schedule D (Form 1040).
2. Any debt canceled is your income.
3. If you lived in the house for two years and owned it for two years in last 5-years, you may be eligible to exclude gain of up to $250,000.
4. The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt of recourse loan on their principal residence. Read Your U.S. Tax Return: Foreclosure or Repossession of Main Home

AtlantaTaxExpert · Feb 5, 2009, 12:13 PM

Agreed. You would need to file Form 982 under the Mortgage Forgiveness Debt Relief Act of 2007.

Suggest you get professional tax help to file this form.

ebaines · Feb 5, 2009, 12:44 PM

Whether you owe taxes on this depends on whether Box 2 is greater than Box 4. If Box 2 (outstanding principal on the loan) is LESS than Box 4 (fair market value), then you have essentially "sold" the house to the lender for the Box 2 amount, and the fair market value was sufficient to cover the loan outstanding balance. But if Box 2 is GREATER than box 4, that means that the mortgage company has foregiven some of your loan, and that difference between Box 2 and Box 4 is considered income to you, although as already noted by others even then you may not have a problem. Let us know if you will receive a form 1099-C from the lender.

One other issue is that you may need to report the sale of the house. Whether you need to report the sale or pay any captal gains depends on your situation - your purchase basis, whether you qualify for an exemption from reporting capital gains on a house sale etc. The sale price that you use in figuring capital gains is the lesser of Box 2 or Box 4. See Pub 523 for details on this:

www.irs.gov/pub/irs-pdf/p523.pdf

Gimpdiggity · Feb 5, 2009, 06:01 PM

I have been trying to get this figured out for a few days now.

Everywhere I look says to use form 982 to avoid paying any taxes on the gain or the income that resulted from the foreclosure, but form 982 wants information specifically from a 1099-c, which I don't have.

The 1099-a, on it, very specificially says that it is used to determine any gain or loss on the sale of the house for tax purposes.

Does this mean that the 1099-a is NOT a document used with form 982, and instead only used to figure out gains and losses?

For instance, form 982 asks you to enter information from a certain box number on the 1099-c, but on the 1099-a, that box doesn't even exist. As such, I'm certain that the 1099-a can't be used with form 982... but I'm still very confused by it all.

ebaines · Feb 6, 2009, 06:45 AM

Yes, 1099-A is essentially a record of the market value of the house and the outstanding principal of the mortgage at the time of foreclosure. You use it to determine your sale price of the house, which you may need to for capital gains purposes. As I sated earlier, if Box 2 on the 1099-A is greater than Box 4 then some of the outstanding loan was foregiven, and consequently you should also be receiving a 1099-C from the lender. It's the information from that 1099-C which you will need for form 982. If Box 2 is less than Box 4 then none of the loan was foregiven (since the bank is saying that the fair market value of the property is greater than the loan amount), so there is no need for them to issue a 1099-C, as there is no income to you. So, on the 1099-A that you received -- is box 2 greater or less than box 4?

Gimpdiggity · Feb 6, 2009, 12:41 PM

Originally Posted by ebaines

Yes, 1099-A is essentially a record of the market value of the house and the outstanding principal of the mortage at the time of foreclosure. You use it to determine your sale price of the house, which you may need to for capital gains purposes. As I sated earlier, if Box 2 on the 1099-A is greater than Box 4 then some of the outstanding loan was foregiven, and consequently you should also be receiving a 1099-C from the lender. It's the information from that 1099-C which you will need for form 982. If Box 2 is less than Box 4 then none of the loan was foregiven (since the bank is saying that the fair market value of the property is greater than the loan amount), so there is no need for them to issue a 1099-C, as there is no income to you. So, on the 1099-A that you received -- is box 2 greater or less than box 4?

Thank you very much. You have just put my mind at ease quite a bit. Everything that you just posted is exactly what I was THINKING was correct. Now I've got some information where someone else is saying that it's correct, too.

My 1099-a has a principal value of just over $110k. The FMV value is just over $115k. So I don't THINK I'll be getting a 1099-c at all, because there really isn't any debt being forgiven, from what I can tell.

Also, the adjusted basis on the property is about $118k ($113k purchase and $5k in improvements), so from what I can tell there is technically a loss on the sale of the house... but that loss is not deductible...