Discussion Archives:Foreclosure, 1099-A and 1099-C over two years

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Discussion Forum Index --> Advanced Tax Questions --> Foreclosure, 1099-A and 1099-C over two years


Discussion Forum Index --> Tax Questions --> Foreclosure, 1099-A and 1099-C over two years

Newtaxguy (talk|edits) said:

October 12, 2012
Clients lost their personal residence in 2010 to foreclosure. 1099-A for the first loan was issued in 2010. The 2010 preparer advised filing 2010 taxes ignoring 1099-A in anticipation of getting a 1099-C. House was not sold until 2011. Sale price of home is more than FMV reported on 1099-A, but both amounts are at or below home's adjusted basis. Unfortunately unpaid first loan balance is about $200k more than the reported FMV and the actual sale price. A 1099-C for a HELOC was issued in 2011. The first loan is a re-fi, thus recourse. The HELOC is also recourse.

For 2010 I think I know how to handle it: I will amend the 2010 return and report sale of home at a loss using 1099-A FMV (which is lower than adjusted basis). Also file form 982, citing QPRI to exclude the rest of the amount cancelled as the funds were used to improve the home.

Not sure what to do for 2011 and the HELOC. I've already reported the sale in 2010 so do I just file 982, citing QPRI for the HELOC? The funds from the HELOC were used for home improvement.

Thanks, TNTG

Trillium (talk|edits) said:

12 October 2012
According to the Category:Cancellation of Debt, 1099-C, 1099-A, short sales, foreclosures, debt forgiveness, 982, etc. page, the search string to use for this situation ("If your client got a 1099-A, but hasn't yet received a 1099-C") is: Search "1099-A" "no 1099-C"

Newtaxguy (talk|edits) said:

October 13, 2012
Trillium,

Thanks for the suggestion. I believe I've now read the prior relevant discussions, and I've read and re-read Dave Fogel's article.

I believe my F&C are different. My situation is a 1099-A for a first loan on a foreclosed property in 2010, followed by a 1099-C for a HELOC on the same foreclosed property in 2011. Am I missing something?

Thanks, TNTG

DaveFogel (talk|edits) said:

13 October 2012
You state that you practice in Northern California. If the property was located in California, then it's likely that the lender holding the first mortgage loan used the non-judicial foreclosure process to foreclose. Under section 580d of the California Code of Civil Procedure, the balance of the loan was deemed canceled at this time (2010). So, you would report both the cancellation of debt income (COD income) resulting from the foreclosure and the disposition of the property on the 2010 return.

If the entire proceeds from the HELOC were used to make improvements to the residence, then the COD income resulting from the 2011 cancellation of the HELOC would be excludable under the principal residence exclusion, which exclusion you would claim on Form 982 for the 2011 return.

Newtaxguy (talk|edits) said:

October 13, 2012
Dave, thanks very much.

Newtaxguy (talk|edits) said:

October 15, 2012
Ooops, client added a new wrinkle.

Client told me today that part of the reason the unpaid balance as reported on the 1099-A grew as large as it did is because the lender increased the outstanding balance by all his missed (or partial) monthly payments.

Does the balance still constitute acquisition indebtedness and still qualify for the principal residence exclusion?

Thanks,TNTG

Captcook (talk|edits) said:

15 October 2012
Debt cancelled that would have provided a deduction, if paid, is not included in COD income. ยง108(e)(2)

The portion of the debt that represented accrued deductible interest is excluded from income if cancelled.

Newtaxguy (talk|edits) said:

October 16, 2012
Thanks Captain,

So to clarify, if (as client suspects) the lender piled all the missed interest payments on top of the existing balance, it can all be excluded as principal residence acquisition indebtedness in this case, right?

TNTG

DaveFogel (talk|edits) said:

16 October 2012
Newtaxguy, that's not what Captcook said. If the portion of the debt that the lender cancels represents accrued and unpaid interest, and if such interest would have been deductible if it had been paid, then such interest does not represent COD income. See Sec. 108(e)(2). As a result, the accrued and unpaid interest isn't treated as acquisition debt, but rather, as canceled interest. The balance of the debt might be acquisition debt.

DAJCPA (talk|edits) said:

17 October 2012
For 2010 I think I know how to handle it: I will amend the 2010 return and report sale of home at a loss using 1099-A FMV (which is lower than adjusted basis)

I assume you are showing the sale to prevent possible IRS correspondence due to the 1099-A. Otherwise, since this is a loss on personal use property, no need to report as a loss on personal use property is nondeductible.

Newtaxguy (talk|edits) said:

October 17, 2012
Yes, DAJCPA, exactly, and also filed the 982 for same reason.
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