Form 1099-A: Acquisition or Abandonment of Secured Property (2014) – A Complete Guide

What Form 1099-A Is For

Form 1099-A, officially titled "Acquisition or Abandonment of Secured Property," is an information return that lenders must file when they take back property that was used as collateral for a loan, or when they discover the property has been abandoned. Think of it as the IRS's way of tracking what happens when loans go bad and property changes hands.

Lenders—including banks, credit unions, mortgage companies, and even governmental units—are required to send this form to both you (the borrower) and the IRS when specific events occur. These events include foreclosures, repossessions of vehicles or equipment, voluntary surrenders of property to the lender, or situations where you've simply walked away from the property.

The form serves a critical tax purpose: it provides information you'll need to calculate potential taxable income or deductible losses on your tax return. When a lender takes back property, it's treated as if you "sold" that property for the amount of debt forgiven, which can create tax consequences. The six boxes on Form 1099-A contain essential details: the date of acquisition or abandonment, the outstanding loan balance, the property's fair market value, whether you were personally liable for the debt, and a description of the property involved.

It's important to note that Form 1099-A only covers the property transfer itself. If the lender also cancels remaining debt in the same year, they might send Form 1099-C (Cancellation of Debt) instead, or both forms together. According to the 2014 Instructions for Forms 1099-A and 1099-C, when debt cancellation occurs simultaneously with property acquisition, lenders can file only Form 1099-C and meet both reporting requirements.

When You’d Use Form 1099-A (Late/Amended Filing)

As a borrower, you don't file Form 1099-A—your lender does. However, you must report the information from this form on your personal tax return for the year the foreclosure, repossession, or abandonment occurred.

If you receive Form 1099-A late: Lenders must send Copy B to you by January 31, 2015 (for the 2014 tax year). If you haven't received an expected form by mid-February, first contact your lender directly. According to IRS guidance, if you still don't receive it by February 15, call the IRS at 1-800-829-1040 for assistance. Even without the physical form, you're still required to report the transaction on your tax return using whatever documentation you have about the property transfer.

If you need to file an amended return: Sometimes the information on Form 1099-A is incorrect, or you discover later that you made errors in reporting the foreclosure or abandonment on your original return. In these cases, you'll need to file Form 1040-X (Amended U.S. Individual Income Tax Return). Common reasons for amendments include receiving a corrected Form 1099-A from your lender, miscalculating your adjusted basis in the property, or incorrectly determining whether you had personal liability for the debt. Generally, you have three years from the date you filed your original return, or two years from when you paid the tax (whichever is later), to file an amended return.

Key Rules or Details for 2014

Several specific rules governed Form 1099-A reporting for the 2014 tax year, as detailed in the 2014 Form 1099-A and accompanying instructions:

What must be reported: Lenders must file Form 1099-A whenever they acquire an interest in property that secured a loan, or when they know or have reason to know the property was abandoned. This applies regardless of whether the lender is in the business of lending money—even one-time lenders have reporting obligations if they lent money in connection with a trade or business.

What doesn't need reporting: No Form 1099-A is required for tangible personal property (like cars or furniture) held solely for personal use. However, if that car or furniture was used partly or wholly in a business or held as an investment, reporting is required. Additionally, if the property securing the loan is located outside the United States and you provided a sworn statement that you're an exempt foreign person, no reporting is necessary.

The abandonment rule: A key 2014 provision concerned when property is considered "abandoned." The IRS looks at objective facts and circumstances to determine if you intended to permanently discard the property. Lenders are deemed to "know" about abandonment based on reasonable inquiry. If the lender expects to start foreclosure within three months of discovering abandonment, they can wait until the foreclosure completes. Otherwise, they must report at the end of the three-month period.

Coordination with Form 1099-C: For 2014, if your lender both acquired your property and canceled remaining debt in the same calendar year, they could file only Form 1099-C and satisfy both reporting requirements by completing specific boxes on that form. This avoided duplicate reporting.

Privacy protection: Starting in 2014, lenders were permitted to truncate your Social Security number on the copy sent to you (showing only the last four digits), though they must report your complete number to the IRS.

Step-by-Step (High Level)

Overview of the Process

Step 1: The qualifying event occurs.

Your lender forecloses on your home, repossesses your car, accepts a voluntary surrender of property, or discovers you've abandoned the property. The date this happens becomes critical for determining which tax year the event gets reported in.

Step 2: Your lender files the form.

The lender must file Form 1099-A with the IRS by March 2, 2015 (for 2014 transactions), or March 31, 2015 if filing electronically. They gather essential information including the outstanding loan balance (principal only—no interest or fees), the property's fair market value on the acquisition/abandonment date, and whether you were personally liable for the debt.

Step 3: You receive your copy.

By January 31, 2015, the lender must furnish Copy B to you. This form provides the information you need to report the transaction on your 2014 tax return.

Step 4: You calculate tax consequences.

This is where it gets complex. Using information from Form 1099-A along with your records of the property's adjusted basis (generally what you paid for it, plus improvements, minus depreciation), you determine if you have a gain or loss. According to IRS Topic 432, gain or loss is generally the difference between your adjusted basis and the amount of debt canceled or, if greater, the sale proceeds. If the debt exceeds the property's fair market value, you may also have cancellation of debt income.

Step 5: You report on your tax return.

Depending on the property type and your situation, you'll report the transaction on Schedule D (for capital gains/losses), Form 4797 (for business property), or other relevant forms. If your main home was involved, special exclusion rules under IRS Publication 523 might apply.

Step 6: The IRS receives information from both sides.

The IRS has copies from both you and your lender, allowing them to match reports and identify discrepancies.

Common Mistakes and How to Avoid Them

Mistake #1: Ignoring the form entirely.

Many taxpayers assume that because they lost money on the property, they don't need to report anything. Wrong. Even if you have a loss, you must report the transaction. Failure to report can trigger IRS inquiries and penalties. Solution: Always report Form 1099-A information on your tax return, even if you believe there's no tax owed.

Mistake #2: Confusing personal liability status (Box 5).

Whether you were "personally liable" for the debt dramatically affects your tax consequences. If Box 5 is checked (recourse debt), different rules apply than if it's unchecked (nonrecourse debt). With recourse debt, any debt forgiveness generally creates taxable income. With nonrecourse debt, you typically don't have separate cancellation of debt income. Solution: Review your original loan documents or consult your lender to verify the correct liability status if Box 5 seems incorrect.

Mistake #3: Using the wrong property values.

Box 2 shows the loan balance; Box 4 shows the property's fair market value. Many taxpayers confuse these figures or use outdated appraisals. The fair market value should reflect the property's worth on the specific acquisition/abandonment date. Solution: If you disagree with the fair market value shown, gather contemporaneous evidence (recent appraisals, comparable sales, auction results) to support your position.

Mistake #4: Forgetting to account for adjusted basis.

Your tax gain or loss isn't just the difference between Box 2 and Box 4—you must subtract your adjusted basis in the property. This requires maintaining good records of your original purchase price, improvements made, and any depreciation claimed. Solution: Reconstruct your basis using closing documents, receipts for improvements, and prior tax returns showing depreciation.

Mistake #5: Overlooking exclusions and special rules.

If Form 1099-A involves your main home, you might qualify for the home sale exclusion (up to $250,000 for single filers, $500,000 for joint filers). Additionally, certain debt forgiveness was excludable under special provisions like the Mortgage Forgiveness Debt Relief Act. Solution: Consult IRS Publication 4681 for detailed rules about exclusions and exceptions.

Mistake #6: Failing to reconcile with Form 1099-C.

If you receive both Form 1099-A and Form 1099-C for the same transaction, you must carefully coordinate the reporting to avoid double-counting income or incorrectly calculating gain/loss. Solution: Consider professional tax help when dealing with both forms for the same property.

What Happens After You File

After you've reported Form 1099-A information on your tax return, several scenarios may unfold:

Routine processing: In most cases, if your reporting matches the lender's Form 1099-A submission and your calculations are correct, the IRS processes your return normally. You may receive your refund (if applicable), or your tax account is updated with the amount you owe.

IRS matching program: The IRS runs sophisticated computer programs that match information returns (like Form 1099-A) against what taxpayers report. If there's a discrepancy—for example, you didn't report a Form 1099-A transaction at all, or the amounts don't match—you may receive a CP2000 notice. This "underreporter inquiry" proposes changes to your return and assesses additional tax, penalties, and interest.

If you receive an IRS notice: Don't panic. CP2000 notices aren't bills—they're proposals. You have the right to respond, provide explanations, and submit supporting documentation. Common reasons for legitimate discrepancies include exemptions or exclusions that apply to your situation but weren't apparent to the IRS computer system.

Amended return processing: If you filed an amended return to correct Form 1099-A reporting, expect slower processing—typically 8 to 12 weeks or longer. The IRS manually reviews amended returns. You can check the status using the "Where's My Amended Return?" tool on IRS.gov.

Audit potential: While most returns aren't audited, certain factors can increase scrutiny. Large losses claimed from foreclosures, frequent real estate transactions, or significant discrepancies between reported values and typical market conditions might trigger additional review. If audited, you'll need to provide documentation supporting your adjusted basis, the property's fair market value, and any exclusions or exceptions claimed.

State tax considerations: Don't forget that most states have their own tax implications for foreclosures and abandonments. Your state may or may not conform to federal treatment of cancellation of debt income or capital gains exclusions. Check your state's tax agency website or consult a local tax professional.

FAQs

Q1: I received Form 1099-A for a foreclosure on my home. Does this mean I definitely owe taxes?

Not necessarily. Several factors determine your actual tax liability. If the home was your principal residence, you might qualify for the home sale exclusion of up to $250,000 (single) or $500,000 (married filing jointly) of gain. Additionally, special mortgage debt relief provisions may exclude cancellation of debt income. Calculate your actual gain by subtracting your adjusted basis from the debt canceled or the fair market value (whichever is less for recourse debt). Many homeowners end up owing nothing due to these exclusions, but you still must report the transaction.

Q2: What if I never received Form 1099-A but I know my property was foreclosed in 2014?

You're still required to report the foreclosure on your tax return even without the form. Contact your lender immediately to request a copy. If they can't or won't provide it, gather other documentation: the foreclosure judgment, trustee's sale documents, or correspondence from your lender. Use this information to complete your tax return as accurately as possible. Document your attempts to obtain the form in case of later IRS questions.

Q3: Can I deduct the loss I took when my property was foreclosed?

It depends on the property type. Losses on property held solely for personal use (like your primary residence or personal vehicle) are not deductible. However, if the property was business or investment property—such as a rental property, business equipment, or a second home held as an investment—you may be able to deduct the loss, subject to various limitations. Report investment and business property losses on Form 4797 or Schedule D, depending on circumstances.

Q4: Box 4 (fair market value) and Box 2 (loan balance) are very different. Which one matters for my taxes?

Both matter, but for different reasons. The fair market value helps you determine gain or loss from the deemed "sale" of the property. The loan balance tells you the amount of debt potentially forgiven. Your actual tax consequence depends on whether you had recourse or nonrecourse debt (Box 5). For recourse debt, if the loan balance exceeds the fair market value, you may have both a gain/loss on the property transfer AND separate cancellation of debt income. For nonrecourse debt, the loan balance generally determines your amount realized from the "sale."

Q5: I jointly owned the property with someone else. Should we each receive Form 1099-A?

Yes. For debts of $10,000 or more incurred after 1994, lenders must issue separate Forms 1099-A to each person who is jointly and severally liable for the debt, showing the full amount. For smaller debts or those incurred before 1995, the lender only needs to send the form to the primary borrower. Each borrower who receives the form must report the transaction on their individual return.

Q6: My lender sent both Form 1099-A and Form 1099-C for the same property. Do I report both?

When you receive both forms for the same transaction, you need to carefully coordinate your reporting to avoid double-counting. Generally, Form 1099-C (cancellation of debt) incorporates the property information from Form 1099-A in boxes 4, 5, and 7. Use the information from both forms, but don't report the same income twice. The transaction typically results in two separate tax calculations: one for gain/loss on the property transfer (using Form 1099-A information) and one for cancellation of debt income (using Form 1099-C information), though they're related and must be coordinated. Professional tax assistance is highly recommended in these situations.

Q7: Can I exclude cancellation of debt income if I was insolvent when the foreclosure happened?

Potentially, yes. The IRS allows you to exclude canceled debt from income if you were insolvent immediately before the cancellation. Insolvency means your total debts exceeded your total assets. You'll need to complete Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) and demonstrate your insolvency with detailed financial records. This can be complex, so consider consulting a tax professional to ensure you calculate insolvency correctly and properly claim the exclusion.

For More Information

• 2014 Form 1099-A
• 2014 Instructions for Forms 1099-A and 1099-C
• IRS Topic 432
• Publication 4681 - Canceled Debts, Foreclosures, Repossessions, and Abandonments

Note: Tax situations involving foreclosures, repossessions, and abandoned property can be extremely complex. While this guide provides general information about Form 1099-A for 2014, it's not a substitute for professional tax advice tailored to your specific circumstances. Consider consulting a qualified tax professional, especially when dealing with significant amounts or complicated situations involving multiple properties or forms.