Form 1099-A (2018): Acquisition or Abandonment of Property

What Form 1099-A (2018) Is For

Form 1099-A (2018) is issued by a financial institution or lender when they acquire or become aware of the abandonment of secured property during the same calendar year. The form helps both the borrower and the Internal Revenue Service identify any tax implications resulting from a foreclosure or abandonment of real property or tangible personal property. It reports the property’s fair market value and the outstanding loan balance, which are used to determine potential capital gains, losses, or taxable income for tax purposes.

When You’d Use Form 1099-A (2018)

You would use Form 1099-A (2018) when a lender’s acquisition or abandonment of secured property occurs within the same tax year.

1. Foreclosure Sale: You must report the transaction when a lender forecloses on real property, business, or investment property that was used to secure a loan.
   
   
2. Abandonment of Secured Property: You must report when you permanently stop maintaining or using property securing a debt, and the lender becomes aware of the abandonment.
   
   
3. Canceled Debt: You must report when a portion of your debt owed is canceled or combined with Form 1099-C to report canceled debt income.
   
   
4. Personal or Business Use: You must report the acquisition or abandonment, regardless of whether the property was used for personal, business, or investment purposes, as each has different tax consequences under federal tax law.

Key Rules or Details for 2018

Several tax rules apply when reporting Form 1099-A (2018) for the 2018 calendar year.

• Filing by Financial Institutions: Lenders and other financial institutions must file Form 1099 when they lend money secured by property and later acquire the property or learn of its abandonment.
  
  
• Recourse Debt vs. Nonrecourse Debt: Taxpayers must determine whether they were personally liable for repayment. With recourse debt, the sales price equals the property’s fair market value, whereas with nonrecourse debt, the sales price equals the outstanding debt balance.
  
  
• Coordination with Form 1099-C: When a lender cancels a portion of the debt, Form 1099-C may be issued, either in addition to or instead of Form 1099-A, to report both the acquisition and canceled debt.
  
  
• Qualified Principal Residence Indebtedness: Taxpayers whose primary residence was foreclosed may qualify to exclude canceled debt from taxable income under the qualified principal residence indebtedness exclusion.
  
  
• Fair Market Value Reporting: The property’s fair market value listed on the form determines whether the taxpayer must report a taxable gain, capital loss, or no tax liability, depending on the adjusted basis of the property.

Address any unfiled federal income tax returns before reporting a foreclosure or abandonment event on your current return.

Step-by-Step (High Level)

Follow these steps to report Form 1099-A (2018) for tax filing correctly and to avoid errors in determining your tax implications.

1. Verify Form Details: Review the form to ensure the property’s fair market value, outstanding loan balance, and personal liability status are correct before including them in your tax return.
   
   
2. Collect Records: Gather all relevant documents such as the original purchase price, capital improvements, accrued interest, foreclosure costs, and other records needed to calculate your adjusted basis.
   
   
3. Calculate the Amount Realized: For recourse debt, use the property’s fair market value; for nonrecourse debt, use the outstanding mortgage or principal outstanding as the amount realized.
   
   
4. Determine Gain or Loss: Subtract your adjusted basis from the amount realized; if the result is positive, it represents a taxable gain, and if negative, it may reflect a capital loss depending on property use.
   
   
5. Select the Correct Tax Form: Use Schedule D or Form 4797, depending on whether the transaction involved personal property, business, or investment property.
   
   
6. Consult a Tax Professional: Seek professional guidance to confirm debt cancellation rules and determine if you qualify for the home sale exclusion or other federal tax relief programs.

To understand what happens if the IRS has questions after you file, read about the IRS collection process.

Common Mistakes and How to Avoid Them

The following are the most frequent mistakes and how to prevent them:

• Ignoring the Form: Failing to report a foreclosure or abandonment can result in IRS penalties; taxpayers should always include any acquisition or abandonment of secured property on their income tax return.
  
  
• Misunderstanding Recourse Debt: Using the wrong value to calculate gain or loss may increase your tax liability; always confirm whether you were personally liable for the debt before completing your tax form.
  
  
• Overlooking Canceled Debt Income: Forgetting to report canceled debt can cause underreported gross income; use Form 1099-C to report canceled debt income when debt cancellation occurs.
  
  
• Claiming Nondeductible Losses: Attempting to deduct losses on personal use property, such as a primary residence or vehicle, is not permitted; only business or investment property losses can be reported as capital losses.
  
  
• Incorrect Valuation: Reporting an inaccurate fair market value can lead to tax calculation errors; use the foreclosure sale price or a reliable appraisal to ensure the value aligns with the lender’s records.
  
  
• Forgetting Tax Exclusions: Many taxpayers miss valuable exclusions; review whether you qualify for the home sale exclusion or the qualified principal residence indebtedness exclusion to minimize tax consequences.

See if you qualify to reduce your taxable income from canceled debt by filing IRS Form 982 for debt exclusions.

What Happens After You File

After you include the details from Form 1099-A (2018) in your federal tax return, the Internal Revenue Service compares your information with the data reported by the lender. If the amounts match, the filing is complete, and no further action is needed. If discrepancies appear between the fair market value, outstanding debt, or canceled debt figures, the IRS may issue a CP2000 notice requesting clarification or additional documentation. 

If you are reporting a foreclosure on a business or investment property, you can obtain your business tax transcript to confirm the information reported to the IRS.

FAQs

How does fair market value affect Form 1099-A (2018) reporting?

Fair market value determines your sales price for tax purposes and affects whether you report a taxable gain or capital loss. If the foreclosed property’s fair market value differs from the outstanding mortgage or unpaid principal, the Internal Revenue Service may adjust your tax liability. 

How do I handle canceled debt on Form 1099-A (2018)?

Canceled debt often counts as ordinary income unless it is excluded under tax laws, such as the qualified principal residence indebtedness rule. If the lender cancels remaining debt after a foreclosure sale, report canceled debt using Form 1099-C and include it in your tax filing. You may need to pay taxes on debt outstanding if no exclusion applies. 

What qualifies as abandonment of secured property for tax purposes?

Abandonment of secured property occurs when you permanently cease using or maintaining the property that secures a loan. The lender immediately assumes ownership responsibility once the property is considered abandoned secured property. 

Why is my taxpayer identification number required on Form 1099-A (2018)?

Your taxpayer identification number ensures that the Internal Revenue Service can match your income tax return with the information reported by the lender. Without a valid taxpayer identification number, your tax filing may be delayed, or your tax refund could be withheld.