When a house is foreclosed upon by the bank or lender, the owners will typically receive Form 1099-A from the lender showing several pieces of relevant information.
Where to report Form 1099-A?
If you received Form 1099-A and the property was not used for a business, go to:
- Federal Section
- Income -Select My Forms
- Capital Gain and Losses
- Capital Gains and Loss Items
Entry information should be like this:
- The Date Acquired will be the original date of purchase.
- The Date Sold will be the date listed in Box 1 of the 1099-A Form.
- The Sales Price will be either the amount in Box 2 or Box 4 (If you’re not liable for any debt that remains on your loan, you won’t use the fair market value; instead, you’ll use the outstanding mortgage balance at the time of foreclosure.)
- The Cost will be the original purchase price or Cost Basis in the property. This can be found on the HUD-1 closing statement you received when you purchased the property.
If the property was used for a business (such as a rental property), go to:
- Federal Section
- Income - Select My Forms
- Less Common Income
- Sale of Business Property Form 4797
If your property is foreclosed upon and you receive Form 1099-C instead of Form 1099-A, the information is treated as a Cancellation of Debt and must be reported as such. To report, go to:
- Federal Section
- Income -Select My Forms
- Less Common Income
- Cancellation of Debt Form 1099-C, Form 982
Why would I receive Form 1099-A?
When a house is foreclosed upon by the bank or lender, the owners will typically receive Form 1099-A from the lender showing several pieces of relevant information.
If you receive only a Form 1099-A, the information will be used to report the foreclosure as the sale of property. The former property owner, the debtor, will need to report the foreclosure so that the program can calculate their gain or loss on the property. Unlike an ordinary sale, there is no 'selling price' and the Form 1099-A information is relevant to determine this value.
The taxpayer will need to find the 'selling price' so the gain or loss can be calculated. Depending on the type of loan, the taxpayer will utilize either the fair market value (FMV) of the property or the outstanding loan balance on the property for the selling price. Both figures are reported on Form 1099-A; the outstanding loan balance is in Box 2 and the property's FMV is in Box 4.
Which box value you'll use depends on your states lending laws. State law determines whether the amount in Box 2 or the amount in Box 4 is your selling price. Please click here to find contact information for your state tax office, to make sure you select the correct value.
The date the property was disposed is the foreclosure date indicated in Box 1. You will need to know if the loan was a recourse (i.e. you are personally liable for any unpaid debt) or a non-recourse loan. If box 5 is checked, then most likely it is a recourse loan.
If you have a non-recourse loan, your sales price will be the full amount of the outstanding debt immediately before the foreclosure. This applies even if the FMV (Fair Market Value) of the property is less than the outstanding debt.