Form 1099-A (2021): Acquisition or Abandonment of Property

What Form 1099-A (2021) Is For

Form 1099-A (2021) is used to report the lender’s acquisition or borrower’s abandonment of secured property when a loan is foreclosed, repossessed, or otherwise unresolved. The Internal Revenue Service requires lenders, financial institutions, and credit unions to file this tax form when they acquire real property, tangible personal property, or investment property used to secure a loan. 

The form helps taxpayers determine if a gain or loss must be reported for tax purposes and whether any canceled debt should be included as taxable income. 

When You’d Use Form 1099-A (2021)

You’ll use the information from Form 1099-A (2021) when specific property transactions occur during the calendar year.

• Foreclosure or Repossession: Report a foreclosure sale or repossessed real property when the lender forecloses on property securing a loan and issues Form 1099-A to record the event.
  
  
• Abandonment of Secured Property: Use this form’s data when you abandon real property or personal property, and the lender immediately records the abandonment for IRS reporting.
  
  
• Lender’s Acquisition: Include the form’s details when the lender’s acquisition of the property and any related debt cancellation occur in the same calendar year.
  
  
• Amended Returns: File an amended federal tax return if you receive Form 1099-A after your original filing, ensuring all information aligns with IRS guidelines.
  
  
• Multiple Borrowers: When more than one borrower is personally liable, each person should use their own form copy to calculate their share of the gain or loss for their tax returns.

If you are left with a tax balance following a property acquisition or abandonment, you may be eligible for payment plan options for tax debt to help resolve your IRS obligations.

Key Rules or Details for 2021

For tax year 2021, several important IRS rules determined how Form 1099-A (2021) should be reported.

• No Minimum Reporting Threshold: Financial institutions must file Form 1099 for every acquisition or abandonment of secured property, regardless of the property’s fair market value or the outstanding loan balance at the time of transfer.
  
  
• Recourse vs. Nonrecourse Debt: If the borrower was personally liable, the fair market value of the property is used as the sales price; if not, the unpaid principal or outstanding debt amount becomes the reported sales price.
  
  
• Form 1099-C Coordination: When a lender cancels debt in the same calendar year, Form 1099-C may be issued instead of Form 1099-A to report the canceled debt and the property’s status under a single filing.
  
  
• Types of Property Covered: The rule applies to real property, intangible property, and business or investment property, including tangible personal property such as office equipment or vehicles used for business purposes.

Taxpayers who incur penalties due to reporting mistakes may benefit from IRS penalty abatement if they have reasonable cause or a strong compliance history.

Step-by-Step (High Level)

1. Verify the Information: Check the acquisition or abandonment date, the property’s fair market value, and the unpaid principal to ensure all information matches lender records before you file your tax form.
   
   
2. Collect Supporting Records: Gather foreclosure sale notices, closing statements, and documents showing the original purchase price and adjusted basis of the property to calculate gain or loss accurately.
   
   
3. Determine the Amount Realized: For recourse debt, use the property’s fair market value to calculate gain or loss; for nonrecourse debt, use the outstanding mortgage or principal outstanding instead.
   
   
4. Calculate Gain or Loss: Subtract your adjusted basis from the total amount realized to determine whether you have a capital gain or capital loss, ensuring consistency with IRS tax rules.
   
   
5. File Correctly: Report the transaction using Schedule D, Form 4797, or another appropriate IRS form, depending on whether the property was for personal use, business, or investment purposes.
   
   
6. Seek Professional Advice: Consult a qualified tax expert if your situation involves complex debt rules, foreclosure costs, or qualified principal residence indebtedness exclusions.

If you receive an IRS notice or have gaps in your tax filings, take action to resolve unfiled individual returns and restore compliance.

Common Mistakes and How to Avoid Them

Many taxpayers make reporting errors when using Form 1099-A (2021); here is how to avoid them.

• Not Reporting the Transaction: Always report the transaction on your federal tax return, even if you believe there is no taxable income, to avoid Internal Revenue Service notices or penalties.
  
  
• Using the Wrong Sales Price: Verify whether the debt was recourse or nonrecourse before determining the sales price, as incorrect reporting can affect your taxable income or create an inaccurate gain or loss.
  
  
• Ignoring Adjusted Basis: Use your original purchase price, plus improvements, and minus any depreciation, to ensure your adjusted basis is correct and your tax liability is calculated accurately.
  
  
• Forgetting About Canceled Debt: If the lender cancels a portion of the debt and issues Form 1099-C in the same calendar year, be sure to report the canceled debt income separately from the property disposition.
  
  
• Claiming Personal Use Losses: Do not deduct losses from personal property or a primary residence, as these are not deductible under IRS tax rules; only business or investment property losses qualify.
  
  
• Incorrect Reporting Year: Report the acquisition or abandonment based on the date shown on Form 1099-A to ensure your filing matches IRS records for that calendar year.

What Happens After You File Form 1099-A (2021)

After you report the information from Form 1099-A (2021) on your federal tax return, the Internal Revenue Service compares your entry with the form filed by the lender. If the figures match, your return will process normally. However, any discrepancies may result in a CP2000 notice requesting clarification or documentation. 

If your calculation shows a taxable gain, you may owe additional tax; if you overpaid, you may receive a tax refund. If you’d like a tax professional to manage your IRS correspondence or represent you, consider setting up a Power of Attorney for tax matters.

FAQs

Do I owe taxes if my property was foreclosed and I received Form 1099-A?

Whether you owe taxes depends on the property’s fair market value, your outstanding debt, and whether the debt was recourse or nonrecourse. If you qualify for the home sale exclusion or for qualified principal residence indebtedness, part or all of the gain may be excluded from taxable income on your tax return.

What if I receive both Form 1099-A and Form 1099-C?

If both forms cover the same property securing the loan, you must report canceled debt separately from the gain or loss on the property. Form 1099-C reports canceled debt income, while Form 1099-A provides details for calculating gain or loss based on the property’s fair market value and adjusted basis.

How can I correct errors on my Form 1099-A?

If your form lists an incorrect fair market value, acquisition date, or outstanding debt, contact your financial institution or credit union immediately. The lender can issue a corrected copy to ensure your filing complies with IRS guidelines and accurately reflects the transaction.

Is a loss on personal property deductible?

A loss on personal property, including a primary residence, is not deductible for tax purposes. Only losses related to business or investment property may be deducted when properly documented and reported under IRS tax rules.