Form 1099-A (2017): Acquisition or Abandonment of Property

What Form 1099-A (2017) Is For

Form 1099-A (2017) is an IRS tax form used when a lender acquires property or becomes aware that a borrower has abandoned property securing a loan. It serves as a formal notice to the Internal Revenue Service regarding the lender’s acquisition or the borrower’s abandonment of secured property. The form enables both parties to determine whether there is reportable gain, loss, or canceled debt income for tax purposes. It applies to real property, business or investment property, and tangible personal property that secures a financial obligation.

When You’d Use Form 1099-A (2017)

You would use Form 1099-A (2017) when property that secures a loan is foreclosed upon, voluntarily surrendered, or abandoned by the borrower.

1. Foreclosure or Repossession: This applies when a lender forecloses on real property or repossesses business property because the borrower failed to repay the outstanding debt balance.
   
   
2. Voluntary Transfer: This occurs when a borrower voluntarily conveys property back to the lender through a deed, rather than through foreclosure, to satisfy or settle the remaining debt obligation.
   
   
3. Abandoned Property: This applies when a financial institution determines that a borrower has permanently abandoned the secured property, demonstrated by a lack of payments or communication.
   
   
4. Joint Borrowers: This applies when two or more borrowers are personally liable for the same outstanding loan balance, and each must receive a separate Form 1099-A reflecting the full amount.
   
   
5. Debt Cancellation: This applies when a lender cancels the borrower’s remaining debt in the same calendar year as the acquisition or foreclosure, which may also trigger a Form 1099-C filing.

Before reporting a foreclosure or property abandonment, make sure you have no unfiled federal income tax returns for prior years.

Key Rules or Details for 2017

Several key IRS rules applied to Form 1099-A (2017) that determined how lenders and borrowers reported property transactions and canceled debt for tax purposes.

1. Property Reporting Requirements: Lenders were required to file Form 1099-A for real property, intangible property, and tangible personal property held for business or investment purposes.
   
   
2. Debt Thresholds: Although there was no minimum dollar threshold for filing, canceled debt of $600 or more in the same calendar year required filing Form 1099-C, in addition to or instead of Form 1099-A.
   
   
3. Personal Liability Indicator: The checkbox showing whether the borrower was personally liable determined how gain, loss, or cancellation of debt income was calculated for tax purposes.
   
   
4. Principal vs. Interest: The form reported only the unpaid principal outstanding on the loan and did not include accrued interest, penalties, or foreclosure costs.
   
   
5. Joint Borrowers: Each borrower who was jointly responsible for repayment was issued a separate form reflecting the same loan balance and property information.

Learn what to expect after filing and how to respond to IRS notices by reviewing our IRS collection process guide.

Step-by-Step (High Level)

Understanding Form 1099-A (2017) involves reviewing each box carefully to ensure accurate reporting of property values, debt amounts, and potential taxable income.

1. Box 1 – Date Acquired: Review the date of acquisition or abandonment to determine the correct calendar year for reporting the transaction.
   
   
2. Box 2 – Principal Outstanding: Verify the unpaid principal balance of the loan, excluding any accrued interest or foreclosure-related costs.
   
   
3. Box 4 – Fair Market Value: Check the property’s fair market value or foreclosure sale price to calculate the correct amount of gain or loss.
   
   
4. Box 5 – Personal Liability: Determine whether you were personally liable for the debt, as this affects how canceled debt or gain is treated for tax purposes.
   
   
5. Box 6 – Property Description: Confirm that the property description matches the actual property involved, whether it is business property, investment property, or personal-use real property.
   
   
6. Tax Reporting: Use the form’s details to calculate gain or loss, report any cancellation of debt income, or apply exclusions such as qualified principal residence indebtedness on your tax return.

If you believe you may qualify, complete IRS Form 982 for debt exclusions to potentially reduce your tax liability from canceled debt.

Common Mistakes and How to Avoid Them

Taxpayers often make avoidable reporting errors when using Form 1099-A (2017); however, understanding these common issues can help prevent costly tax complications.

• Ignoring the Form Because No Cash Was Received: Always report the information shown on Form 1099-A even if no cash proceeds were received, since canceled debt may still be considered taxable income by the Internal Revenue Service.
  
  
• Confusing Principal Balance with Total Debt: Use only the principal outstanding amount listed on the form rather than the total payoff figure, which may include accrued interest, late fees, or foreclosure costs.
  
  
• Misinterpreting Personal Liability: Confirm whether the loan was recourse or non-recourse before calculating gain or loss, as this determines whether cancellation of debt income must be reported.
  
  
• Failing to Claim Exclusions: Review your eligibility for exclusions such as the qualified principal residence indebtedness or home sale exclusion to reduce or eliminate potential tax liability.
  
  
• Poor Record Keeping: Maintain detailed documentation of the original purchase price, adjusted basis, and supporting financial records to ensure accurate gain or loss calculations.

You can obtain your business tax transcript to confirm IRS records and support your reporting for business-related property.

What Happens After You File Form 1099-A (2017)

After you file your tax return using information from Form 1099-A (2017), the Internal Revenue Service compares the data you reported with the lender’s submission to ensure consistency. If the amounts or property details differ, the IRS may issue a notice requesting clarification or additional documentation. 

Depending on the property’s fair market value, remaining debt, and adjusted basis, you may owe tax, qualify for an exclusion, or have no additional tax liability. If you’re unsure how Form 1099-A affects your tax situation, start your case review for expert support.

FAQs

What is fair market value, and why is it important?

Fair market value represents the price that a willing buyer would pay for the property in an open market. It is used to calculate gain or loss for tax purposes and determines whether the transaction results in taxable income or deductible loss when completing your tax return.

Does canceled debt always create taxable income?

Canceled debt may create taxable income if the borrower was personally liable for repayment under a recourse loan. However, specific exclusions such as qualified principal residence indebtedness, insolvency, or bankruptcy may allow the taxpayer to exclude the canceled debt amount from taxable income.

How do capital gains apply to Form 1099-A (2017)?

Capital gains occur when the fair market value or sales price of the property exceeds its adjusted basis at the time of acquisition or abandonment. The gain may be taxable as a short-term or long-term capital gain depending on the holding period and the property’s use.

How do I report canceled debt on my tax return?

You report canceled debt income by using Form 982 in conjunction with Form 1099-A or Form 1099-C. The Internal Revenue Service requires this information to verify whether exclusions apply and to determine if the debt cancellation results in ordinary income or a taxable gain.