Form 1099-A (2020): Acquisition or Abandonment of Property

What Form 1099-A (2020) Is For

Form 1099-A (2020) is an information return that lenders and financial institutions must file when they acquire or believe a borrower has abandoned secured property that was used as collateral for a loan. The Internal Revenue Service requires this tax form to record instances of foreclosure, repossession, or abandonment of real property, personal property, or business property. 

If you have a remaining tax balance after a property disposition, you may qualify for payment plan options for tax debt to help resolve your IRS obligations.

When You’d Use Form 1099-A (2020)

Form 1099-A (2020) applies in several financial circumstances where a loan secured by property results in foreclosure, repossession, or abandonment:

• Foreclosure or Repossession: This form is used when a lender forecloses on or repossesses business or investment property after the borrower defaults on a loan, and the property’s fair market value must be reported to the Internal Revenue Service.
  
  
• Abandoned Secured Property: This form must be filed when a borrower permanently abandons property that secures a loan, and the lender has reason to believe the property will not be reclaimed.
  
  
• Lender’s Acquisition: This form is required when the lender acquires ownership or legal title to foreclosed property, real property, or investment property through foreclosure or a voluntary transfer.
  
  
• Canceled Debt: This form may be issued in conjunction with Form 1099-C when the lender cancels or forgives an outstanding loan balance in the same calendar year, potentially creating a tax event for the borrower. 

Key Rules or Details for 2020

Several important reporting rules applied to Form 1099-A (2020) for the 2020 tax year:

• Who Must File Form 1099-A: Any financial institution or business that lends money and later forecloses on or acquires property securing that loan is required to file Form 1099-A with the Internal Revenue Service.
  
  
• Filing Deadlines: Lenders must file the form with the IRS by March 1 if filing on paper or by March 31 if filing electronically for the same calendar year.
  
  
• Outstanding Loan Balance: Only the unpaid principal or outstanding debt should be reported; accrued interest, foreclosure costs, or additional fees must not be included in this figure.
  
  
• Personally Liable Borrowers: Box 5 indicates whether the borrower was personally liable for the debt, which determines whether the amount realized equals the fair market value or the full debt amount for tax purposes.

Step-by-Step (High Level)

Borrowers and lenders both have specific steps to follow when handling Form 1099-A (2020):

For Borrowers:

1. Verify All Details: Review the form carefully to ensure the date acquired, the property’s fair market value, and the outstanding loan balance are correctly reported by the lender.
   
   
2. Determine the Property’s Status: Identify whether the property involved is real property, tangible personal property, or business or investment property for accurate tax reporting.
   
   
3. Calculate Gain or Loss: Subtract your adjusted basis—usually the original purchase price plus any improvements—from the property’s fair market value or total debt outstanding to determine whether you have a taxable gain or capital loss.
   
   
4. Report on Your Federal Tax Return: Include any gain or loss on your federal tax return using Schedule D, Form 8949, or Form 4797 when the property qualifies as business property.
   
   
5. Check for Additional Forms: If you also receive Form 1099-C, report any canceled debt income separately according to Internal Revenue Service rules and verify whether exclusions such as insolvency apply.

For Lenders:

1. Identify When to File: File Form 1099-A when the lender forecloses, repossesses, or becomes aware that a borrower has abandoned secured property.
   
   
2. Complete the Form Accurately: Enter all information precisely, including the borrower’s taxpayer identification number, the property’s fair market value, and the date of acquisition or abandonment.
   
   
3. Send Copies by the Deadline: Provide the borrower with their copy by January 31 and file it with the IRS by the applicable due date for the current calendar year.

For assistance with the IRS or to authorize a representative, consider establishing a Power of Attorney for IRS representation to manage your tax matters.

Common Mistakes and How to Avoid Them

• Wrong Acquisition or Abandonment Date: Always use the actual date when the lender acquired title or the borrower abandoned the secured property to prevent discrepancies on the federal tax return.
  
  
• Including Interest or Fees in the Outstanding Debt: Report only the unpaid principal balance and exclude accrued interest, foreclosure costs, or other charges to avoid overstating the loan balance.
  
  
• Incorrect Fair Market Value: Use verified appraisals, the foreclosure sale price, or another documented valuation rather than estimates to report the property’s fair market value accurately.
  
  
• Incorrect Liability Status: Confirm whether the borrower was personally liable for the debt before completing Box 5, as this determines whether the debt is classified as a recourse debt or a nonrecourse debt.
  
  
• Incomplete Property Descriptions: Provide complete details for real property or tangible personal property, including the address, section, or model information, to ensure clear identification for tax purposes.

If errors or delays lead to IRS penalties, you may be eligible to request penalty abatement for IRS tax filings and potentially reduce your financial burden.

What Happens After You File Form 1099-A (2020)

Once Form 1099-A (2020) is filed, the Internal Revenue Service matches it against the borrower’s federal tax returns to verify consistency. If all data aligns, no further action is needed. However, discrepancies may trigger an IRS notice requiring clarification or correction. 

Borrowers must report any resulting capital gain, ordinary gain, or ordinary income derived from the transaction. Lenders are expected to retain documentation for at least four years in case of an audit. If uncertain about tax liability, adjusted basis, or debt rules, taxpayers should seek professional advice before filing an amended return. 

Understanding the IRS collection process can help you respond effectively to IRS notices or audits related to property foreclosure or abandonment.

FAQs

Do I owe taxes because I received Form 1099-A (2020)?

Receiving Form 1099-A (2020) does not automatically mean you owe taxes. The tax implications depend on the property’s fair market value, your adjusted basis, and whether the debt was recourse or nonrecourse. 

What is the difference between Form 1099-A and Form 1099-C?

Form 1099-A reports the lender’s acquisition or the borrower’s abandonment of secured property, while Form 1099-C reports canceled debt or debt forgiveness. If the lender cancels the debt in the same calendar year as the foreclosure or abandonment, only Form 1099-C may be issued to report both the acquisition and the canceled debt.

How do I report canceled debt on my federal tax return?

Canceled debt must be reported as taxable income unless you qualify for an exclusion such as insolvency, bankruptcy, or qualified principal residence indebtedness. You can determine eligibility for exclusions using IRS Form 982 and related tax form instructions provided by the Internal Revenue Service.

What should I do if the information on my Form 1099-A (2020) is incorrect?

If your form shows incorrect figures, such as the fair market value or loan balance, contact the lender immediately to request a corrected form. Filing your federal tax return with inaccurate data can result in discrepancies, adjustments to tax liability, or IRS audit inquiries.