Form 1099-A: Acquisition or Abandonment of Secured Property (2013)

What Form 1099-A Is For

Form 1099-A is an information return that lenders send to borrowers when they acquire an interest in property that secured a debt, or when they have reason to know the borrower has abandoned the property. Think of it as the IRS's way of tracking what happens when a loan goes bad and the lender ends up with the collateral.

Common situations where you'll receive this form include home foreclosures, car repossessions, voluntary surrenders of property to avoid foreclosure, and property abandonments where you simply walk away. The lender isn't just reporting to be bureaucratic—they're required by law to notify both you and the IRS because these events often have tax consequences.

The form reports two critical pieces of information: the outstanding loan balance (principal only, not including interest or fees) and the fair market value of the property when it changed hands. You'll use these numbers to calculate whether you have a gain or loss on the disposition of the property, which you must report on your tax return. IRS

It's important to understand that receiving Form 1099-A doesn't necessarily mean you owe additional taxes—it simply means you need to report the transaction. Depending on your situation, you might have a capital gain, capital loss, or no tax impact at all.

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

Filing Deadlines for Lenders: For the 2013 tax year, lenders had to file Form 1099-A with the IRS by February 28, 2014 for paper filing or March 31, 2014 for electronic filing. Borrowers should have received their copy by January 31, 2014. IRS

Late Forms: If you didn't receive your Form 1099-A by mid-February 2014, first contact your lender directly to request a copy. If the lender is unresponsive, you should still report the transaction on your 2013 tax return using the best information available. You can estimate the fair market value and loan balance based on foreclosure sale documents or appraisals.

Amended/Corrected Forms: Lenders can issue corrected Forms 1099-A if they discover errors. The corrected form will have an "X" in the "CORRECTED" box at the top. When you receive a corrected form after already filing your tax return, you'll need to file Form 1040X (Amended U.S. Individual Income Tax Return) to correct your tax return if the changes affect your tax liability.

There's no hard deadline for filing corrected information returns, but the IRS generally prefers corrections within three years of the original filing date. If you discover your Form 1099-A contains incorrect information—such as wrong property value or loan balance—contact your lender immediately and request a corrected form. IRS

Key Rules or Details for 2013

Property Types That Require Reporting: For 2013, Form 1099-A was required for real property (like homes and land) and tangible personal property (like cars, boats, or equipment) used in a trade, business, or held for investment. However, one important change for 2013: no reporting was required for tangible personal property held only for personal use, such as your family car. But if that car was used partly for business, Form 1099-A was still required.

Who Must File: Lenders must file Form 1099-A if they lend money in connection with their trade or business and either acquire an interest in secured property or have reason to know the property was abandoned. This includes banks, credit unions, financial institutions, Federal agencies, credit card companies, and any organization whose significant business involves lending money. You don't have to be primarily in the lending business—even occasional business lenders may need to file. IRS

Abandonment Timing: "Abandonment" occurs when objective facts show you intended to permanently discard the property. Lenders are deemed to know of abandonment if they become aware (or should become aware through reasonable inquiry) that property has been deserted. If the lender expects to start foreclosure within 3 months of learning about the abandonment, they must report when they actually acquire the property. If no foreclosure starts within that 3-month window, the reporting requirement kicks in at the end of the 3-month period.

Coordination with Form 1099-C: If your debt was both canceled and the property was acquired or abandoned in the same calendar year, your lender might file only Form 1099-C (Cancellation of Debt) instead of both forms. Form 1099-C includes boxes for the property information that would otherwise appear on Form 1099-A. Don't be alarmed if you receive only one form—this is permitted and simplifies reporting.

Step-by-Step (High Level)

For Borrowers Receiving Form 1099-A:

Step 1: Verify the Information

When you receive Form 1099-A, check that Box 4 (Fair Market Value) and Box 2 (Loan Balance) are accurate. Also verify Box 5, which indicates whether you were personally liable for the debt. This checkbox is crucial because it determines how you calculate your gain or loss.

Step 2: Determine Your Tax Treatment

The tax consequences depend on whether the debt was "recourse" (you're personally liable) or "nonrecourse" (you're not personally liable):

Recourse debt: Your amount realized equals the property's fair market value
Nonrecourse debt: Your amount realized equals the entire debt amount plus any cash you received

Step 3: Calculate Gain or Loss

Subtract your adjusted basis in the property (usually your original purchase price plus improvements, minus depreciation) from the amount realized. This gives you a capital gain or loss.

Step 4: Report on Your Tax Return

For personal property (like your home), report the transaction on Schedule D and Form 8949. For business property, use Form 4797. Even if you're not sure whether you owe taxes, you must report the transaction because the IRS received a copy of your Form 1099-A. IRS

Step 5: Check for Exclusions

You might qualify to exclude some or all of the gain. For example, the home sale exclusion (up to $250,000 for singles, $500,000 for married couples) might apply if the foreclosed property was your principal residence for at least 2 of the previous 5 years.

Common Mistakes and How to Avoid Them

Mistake #1: Ignoring the Form
Many people mistakenly think that because they lost the property, they don't need to report anything. Wrong! The IRS has a copy of your Form 1099-A and expects you to report the transaction. Failing to report can trigger an IRS notice and potential penalties.
Solution: Always include the transaction on your tax return, even if you believe you don't owe taxes. Attach an explanation if needed to clarify why there's no tax liability.

Mistake #2: Confusing Form 1099-A with Form 1099-C
Form 1099-A reports the acquisition or abandonment of property. Form 1099-C reports cancellation of debt. You might receive one or both forms depending on your situation. They address different tax issues: 1099-A deals with gain/loss on property disposition, while 1099-C addresses cancellation of debt income.
Solution: Treat each form separately on your tax return unless your lender filed a combined Form 1099-C that includes property information in boxes 4, 5, and 7.

Mistake #3: Using the Wrong "Amount Realized"
Many taxpayers incorrectly use the loan balance as their amount realized for recourse debt when they should use the fair market value. This error can drastically overstate your gain.
Solution: Check Box 5 on your Form 1099-A. If it's checked (recourse debt), use the fair market value from Box 4. If it's unchecked (nonrecourse), use the loan balance from Box 2 plus any cash received.

Mistake #4: Failing to Claim Applicable Exclusions
Taxpayers often forget they might qualify for the primary residence exclusion, insolvency exclusion, or bankruptcy exclusion that could eliminate or reduce their tax liability.
Solution: Review IRS Publication 4681 carefully or consult a tax professional to determine which exclusions might apply to your situation. These can save thousands of dollars in taxes.

Mistake #5: Not Reconciling Box 2 with Actual Debt
The amount in Box 2 should show only stated principal—not accumulated interest, late fees, or foreclosure costs. Some lenders make errors here.
Solution: Compare Box 2 to your loan statements. If you find discrepancies, contact your lender immediately to request a corrected Form 1099-A.

What Happens After You File

IRS Matching Program: After you file your tax return, the IRS uses sophisticated computer systems to match the Form 1099-A the lender sent them with what you reported on your return. If there's a mismatch—or if you didn't report the transaction at all—the IRS may send you a notice, typically CP2000 (Proposed Changes to Your Tax Return).

Timeline: The IRS generally has three years from your filing date to audit your return or send a notice about discrepancies. However, if you omit substantial income (more than 25% of gross income shown on your return), they have six years.

If You Receive an IRS Notice: Don't panic. Read the notice carefully to understand what the IRS believes is incorrect. You have the right to respond, typically within 30 days. If you disagree with the IRS's position, you can provide documentation supporting your treatment of the transaction. Consider consulting a tax professional, especially if the dollar amounts are significant.

Amended Returns: If you later discover you made an error on your original return, you can file Form 1040X to correct it. You generally have three years from the original filing deadline or two years from the date you paid the tax (whichever is later) to claim a refund through an amended return.

Statute of Limitations: Lenders must keep records of Form 1099-A for at least four years from the due date. You should keep your copy indefinitely along with other documents related to the property transaction, as these records support your tax basis calculations for future IRS inquiries.

FAQs

Q1: I lost my home to foreclosure. Does this mean I owe more taxes?

Not necessarily. You might have a capital loss that provides no immediate tax benefit, a small gain, or even a large gain that's partially or fully excluded. It depends on your home's value, your loan balance, your tax basis, and which exclusions apply to you. Many people facing foreclosure qualify for the insolvency exclusion if their debts exceeded their assets at the time of the transaction.

Q2: My lender sent me both Form 1099-A and Form 1099-C. Do I report both?

Yes, but they address different issues. Report the property disposition (Form 1099-A) to determine gain or loss. Report the canceled debt (Form 1099-C) as potential income, unless you qualify for an exclusion. If both forms were issued for the same transaction, be careful not to double-count any amounts. Some tax software will help you coordinate these forms properly.

Q3: What if Box 5 is incorrect? The lender says I'm not personally liable, but I signed a personal guarantee.

Contact your lender immediately and request a corrected Form 1099-A. Whether you're personally liable significantly affects your tax calculation. If you can't get a corrected form before the filing deadline, file based on the correct information (your personal liability) and attach an explanation to your return. Keep documentation proving your liability status.

Q4: The property fair market value in Box 4 seems too high/too low. What should I do?

First, understand that lenders typically use the gross foreclosure bid price as the fair market value. If you believe this is substantially incorrect, you can request a corrected form and provide supporting documentation (like an independent appraisal). However, challenging the FMV is difficult—you'll need solid evidence that the lender's valuation was unreasonable.

Q5: I abandoned my investment property in 2013 but didn't receive Form 1099-A. Do I still need to report it?

Yes! Your obligation to report the transaction exists regardless of whether you received the form. Estimate the fair market value and outstanding loan balance using the best information available. You might contact the lender to request the form, but don't delay filing your return waiting for it—file using reasonable estimates and amend later if needed.

Q6: Can I deduct the loss I took when the bank foreclosed on my rental property?

Possibly. Losses on business or investment property may be deductible on Form 4797, subject to various limitations. However, losses on personal-use property (like your primary residence) are not deductible. The tax treatment depends entirely on how you used the property before the foreclosure.

Q7: I voluntarily gave my house back to the bank in a "deed in lieu of foreclosure." Will I receive Form 1099-A?

Yes. A voluntary conveyance to avoid foreclosure is treated the same as an actual foreclosure for Form 1099-A purposes. You should receive the form showing the date of transfer, your loan balance, and the property's fair market value. The tax consequences are calculated using the same rules as a forced foreclosure.

Government Sources Used

All information in this guide comes from official IRS sources:

2013 Instructions for Forms 1099-A and 1099-C - Primary source for 2013-specific filing requirements, rules, and procedures

2013 General Instructions for Certain Information Returns - Filing deadlines, correction procedures, and general reporting requirements

IRS Topic 432: Acquisition or Abandonment of Secured Property - General explanation of Form 1099-A and taxpayer obligations

Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments - Detailed guidance on tax consequences and exclusions

Publication 544: Sales and Other Dispositions of Assets - Additional guidance on reporting property dispositions