Form 1099-A (2016): Acquisition or Abandonment of Property

What Form 1099-A (2016) Is For

Form 1099-A (2016) is a tax document issued by a financial institution or lender to report the acquisition or abandonment of secured property when a borrower fails to meet their repayment obligations. The form provides essential information, including the outstanding loan balance, fair market value (FMV), and whether the borrower was personally liable under a recourse loan. 

It helps determine if the taxpayer has a taxable gain, capital loss, or cancellation of debt income resulting from the lender’s acquisition or the property’s abandonment for tax purposes. Make sure you address any unfiled federal income tax returns before adding Form 1099-A details to your tax filing.

When You’d Use Form 1099-A (2016)

This form applies whenever the lender forecloses, repossesses, or takes ownership of property securing a loan, or when the borrower abandons it.

• Foreclosure or Repossession: You must use Form 1099-A (2016) when the lender forecloses on or repossesses real property, tangible personal property, or business property used as collateral for a loan.
  
  
• Abandonment of Secured Property: You must report the abandonment of secured property when you stop using or maintaining property that served as loan collateral and you remain personally liable for repayment.
  
  
• Loan Discharge or Cancellation: If the lender cancels or forgives remaining debt in the same calendar year, you should reference both Form 1099-A and Form 1099-C.
  
  
• Transfer of Ownership: You must use the form when the lender acquires ownership of property to satisfy an outstanding loan balance or unpaid principal.
  
  
• Reporting Obligation for Tax Return: You must report any gain or loss on your tax return when the lender’s acquisition or property abandonment occurs, even if no cash was exchanged.

Learn more about the IRS collection process if you receive a notice or request for documentation after you file.

Key Rules or Details for 2016

1. Recourse vs. Nonrecourse Debt: If the borrower was personally liable for repayment, the fair market value determines the amount realized; if the debt was nonrecourse, the total outstanding loan balance is treated as the sales price for tax purposes.
   
   
2. Types of Property Covered: The form applies to real property, tangible personal property, and business or investment property, but excludes purely personal-use property held only for personal purposes.
   
   
3. Interaction with Form 1099-C: If the lender cancels the remaining debt, both Form 1099-A and Form 1099-C may be applicable; however, taxpayers should not report the same debt as canceled twice.
   
   
4. Fair Market Value and Gain or Loss: The property’s fair market value and unpaid principal balance determine whether the transaction results in a taxable gain, capital loss, or cancellation of debt income.
   
   
5. IRS Filing and Deadlines: Financial institutions must file Form 1099-A with the Internal Revenue Service and provide a copy to the borrower by January 31 of the calendar year following the year of acquisition or abandonment.

If you believe you qualify for relief, use IRS Form 982 for debt exclusions to potentially reduce your taxable debt income.

Step-by-Step (High Level)

When handling Form 1099-A (2016) for your tax return, follow these structured steps to ensure proper reporting and calculation.

1. Review the Form: Verify the date acquired, fair market value, outstanding loan balance, and whether you were personally liable for repayment as shown in Box 5.
   
   
2. Determine Adjusted Basis: Start with your original purchase price, add capital improvements, and subtract depreciation to find your adjusted basis for the property.
   
   
3. Calculate Gain or Loss: Subtract the adjusted basis from the amount realized, which is either the fair market value or total outstanding debt, to determine whether a capital gain or ordinary loss occurred.
   
   
4. Assess Cancellation of Debt: If the lender canceled remaining debt, report canceled debt on your tax return unless you qualify for exclusions under the insolvency or qualified principal residence indebtedness rules.
   
   
5. Complete Required Tax Forms: Use Schedule D for capital gains, Form 4797 for business property, and Form 982 to report any exclusion for canceled debt.
   
   
6. Consult IRS Guidance: Refer to IRS Publication 4681 for examples involving foreclosure costs, abandoned property, or business equipment used as collateral for a recourse loan.

If your property was used for business or investment, obtain your business tax transcript to help ensure your records match IRS data.

Common Mistakes and How to Avoid Them

Many taxpayers misunderstand how to handle Form 1099-A (2016), which can lead to reporting errors or avoidable tax issues.

• Ignoring Form 1099-A: Failing to report a foreclosure or abandoned property can trigger an IRS notice. Always include the transaction details on your tax return, even if no payment was received.
  
  
• Using the Wrong Fair Market Value: Relying solely on the lender’s fair market value can distort gain or loss; confirm the property’s fair market value through appraisals or comparable sales to ensure accuracy.
  
  
• Misidentifying Recourse Loans: Misreporting whether you were personally liable changes how gain or loss is calculated; check Box 5 carefully to determine your repayment liability.
  
  
• Overlooking Capital Improvements: Neglecting to add improvements to your adjusted basis can result in overstating taxable gain; include receipts for upgrades or renovations that affect property value.

If you need help navigating Form 1099-A and foreclosure reporting, start your case review and get advice from a tax professional.

What Happens After You File

After you report Form 1099-A (2016) information on your tax return, the Internal Revenue Service compares your entries with the lender’s filed copy to ensure consistency. If discrepancies exist, you may receive a CP2000 notice requesting documentation or payment adjustments. Maintain records of your taxpayer identification number, account number, and evidence of fair market value for verification purposes. 

FAQs 

How does fair market value affect my reporting on Form 1099-A (2016)?

Fair market value determines the amount realized in a foreclosure sale or abandonment. If it exceeds your adjusted basis, you may have taxable income or gain; if it is lower, it could result in a capital or ordinary loss depending on how the property was used.

What happens if my lender reports canceled debt on Form 1099-A (2016)?

When a lender reports canceled debt, it may become taxable income unless you qualify for exclusions, such as those related to insolvency or bankruptcy. Canceled amounts are treated as ordinary income and must be reflected accurately on your return to avoid IRS correspondence.

Does abandonment of secured property always result in tax liability?

Not always; if the lender does not cancel the remaining debt, the event may only result in a gain or loss, rather than taxable income. 

What if the borrower was personally liable on the loan?

If the borrower is personally liable for repayment, the fair market value of the property at the time of foreclosure or abandonment determines the gain or loss. Any unpaid balance beyond that may become taxable ordinary income.

Does Form 1099-A apply to intangible property or only physical assets?

Form 1099-A generally applies to real property and tangible personal property, but not to intangible property, such as patents or trademarks. The form focuses on secured property for which a lender lent money and subsequently foreclosed or repossessed ownership.