2003 Tax Help Archives  

Keyword: Foreclosures

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4.4 Interest/Dividends/Other Types of Income: 1099 Information Returns (All Other)


My house was foreclosed on and the lender has sent me a Form 1099. What do I do? Must I report this?

You may have received either a Form 1099A (PDF), Acquisition or Abandonment of Secured Property, or Form 1099C (PDF), Cancellation of Debt, or both. You may not have to report gain on the sale of property and, depending on the circumstances, you may have cancellation of indebtedness as well. You have cancelled debt income if the debt cancelled, as a result of the foreclosure and it exceeds the fair market value of the property at the time of he transfer. Cancelled debt income is taxable as other income on line 21 (other income) of Form 1040 (PDF). Refer to Publication 544, Sales and Other Disposition of Assets. Complete Table 1-2, Worksheet for Foreclosure & Repossessions to determine if there is income from cancellation of debt or gain or loss from foreclosure or repossession.

You may be able to exclude all or part of the cancelled debt income if all or part of the debt was discharged in bankruptcy; if you were insolvent immediately before the transfer; or if the debt is a qualified farm debt or qualified real property indebtedness. Refer to Publication 908, Bankruptcy Tax Guide.

You may be required to compute gain on the disposition of the property and, under certain circumstances, may be eligible to claim a loss as well. The tax treatment of he disposition may be affected by whether the debt was recourse or nonrecourse.

If the debt was nonrecourse (you were not personally liable for payment), the amount realized for purposes of computing gain is the sum of the amount of money received, the fair market value of any other property received incident to the transfer of the property subject to foreclosure, and the amount of any nonrecourse debt on the property. The difference between the amount realized and your basis is your gain or loss. No portion of the gain on property subject only to nonrecourse debt is income from discharge of indebtedness.

If the debt was recourse (you could have been held personally liable for payment), the proper treatment depends on the amount of the debt and whether you were discharged as a result of the transaction. If the debt was less than the fair market value of the property, the amount realized is equal to the sum of the amount received and the fair market value of any other property received incident to the transfer of the property subject to foreclosure, and the amount of any debt discharged as the result of the transaction. On the other hand, if the debt was more than the fair market value of the property and it was discharged as result of the transaction, for example, if you gave the creditor a deed in lieu of foreclosure, then the difference between the FMV of the property and the amount of the debt up to the FMV of the property is considered to be the amount realized and the excess debt is considered to be income from discharge of indebtedness. Your gain or loss would be computed by the difference between the FMV of the property and your basis; the balance would be ordinary income reportable on Line 21. If the debt was not discharged because of the foreclosure and the creditor could collect the difference from you, there would be no discharge of indebtedness income until such time as the debt was actually discharged or the statute of limitations expired. In such case, you might only have to report your gain on the disposition of the property.

References:

10.4 Capital Gains, Losses/Sale of Home: Losses (Homes, Stocks, Other Property)


As a result of a bankruptcy, the bank foreclosed on my house. Can you tell me where and how to report this loss on my taxes?

The foreclosure or repossession is treated as a sale or exchange from which you, the borrower, may realize gain or loss. However, if you realize a loss on personal use property, such as your residence, the loss is not deductible. Refer to Publication 544, Sales and other Dispositions of Assets, and Publication 908 (PDF), Bankruptcy Tax Guide, for more information.

References:

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