What Is Form 1099-A, Acquisition or Abandonment of Secured Property

Form 1099-A is a tax form that is used to report the acquisition or abandonment of secured property.

This form is typically used by lenders to report when they have foreclosed on a property or when a property has been repossessed.

The information provided on Form 1099-A is used by the IRS to determine if the borrower has any tax liability as a result of the transaction.

NOTE! Receiving a Form 1099-A does not necessarily mean that the borrower owes any taxes, but it is a document that should be reviewed carefully to determine if there are any tax implications.

If a borrower defaults on a loan and the lender cancels or forgives a portion of the debt, this may be reported on Form 1099-A as a "canceled debt."

What does "canceled debt" mean?

Canceled debt is generally considered to be taxable income, unless the borrower is insolvent or the debt is dischargeable in bankruptcy.

If the borrower is insolvent, which means that their liabilities exceed their assets, the canceled debt may not be taxable. If the debt is dischargeable in bankruptcy, it may also not be taxable.

If you have received a Form 1099-A that reports canceled debt, you should consult a tax pro or refer to IRS guidelines to determine whether the canceled debt is taxable and, if so, how to report it on your tax return.

NOTE! It's important to accurately report canceled debt on your tax return to avoid potential penalties or issues with the IRS.

Canceled debt rules: When Form 1099-C applies

In some cases, canceled debt is reported alongside Form 1099-A.

Here’s what you need to know:

Pro tip: Always check for Form 1099-C if you receive Form 1099-A for a foreclosure or abandonment.

Who can file Form 1099-A?

Form 1099-A is typically filed by lenders who have acquired or abandoned secured property.

This could include banks, credit unions, mortgage companies, and other financial institutions that lend money and secure the loans with real estate or personal property.

There are several copies of Form 1099-A, which is used to report the acquisition or abandonment of secured property.

Here is a breakdown of the different copies:

• Copy A: This copy is filed with the Internal Revenue Service (IRS).
• Copy B: This copy is given to the borrower or recipient of the form.
• Copy C: This one is for the lender's records.

also -

• Copy 1: This copy is sent to the state tax department, if applicable.
• Copy 2: This one is given to the borrower or recipient of the form, if applicable.

It's important to note that these copies are not physically separate forms. Rather, they are different sections or pages of the same form that are used for different purposes.

NOTE! The lender or issuer of the form is responsible for completing and distributing the appropriate copies.

When can I use Form 1099-A?

You can use Form 1099-A if you are a lender and you have acquired or abandoned secured property in a transaction that is not a foreclosure.

For example, if you are a lender and you have taken possession of a property through a deed in lieu of foreclosure, you would use Form 1099-A to report this acquisition to the IRS.

Similarly, if you are a lender and you have released a borrower from the obligation to repay a loan and have taken possession of the property securing the loan, you would use the form to report the abandonment of the property to the IRS.

If you are a borrower and you have received Form 1099-A from a lender, it is important that you review the form carefully and ensure that the information it contains is accurate.

NB! If you believe that the form contains errors or if you have any questions about it, you should contact the lender or seek the advice of a tax professional.

Reporting Form 1099-A on your taxes step-by-step

When it’s time to file your tax return, follow these steps:

1. Determine if you need to report a gain or loss

Use the smaller of the outstanding loan balance (Box 2) or the fair market value (Box 4) as the property’s “sales price.”

Subtract your adjusted basis (original purchase price + improvements - depreciation).

2. Report on the appropriate Form

• Schedule D (Form 1040): For capital gains or losses if the property was a personal or investment asset.
• Form 4797: For ordinary losses if the property was used for business or abandoned.

3. Include any canceled debt income

If you also received Form 1099-C, report canceled debt as taxable income on Form 1040 unless you qualify for an exclusion (e.g., insolvency).

What are the 6 boxes of Form 1099-A?

The right side of Form 1099-A is divided into six boxes, each of which is used to report specific information about the acquisition or abandonment of secured property.

The boxes are as follows:

• Box 1: This box is used to report the name, address, and taxpayer identification number (TIN) of the borrower.
• Box 2: This box is used to report the date the lender acquired the property.
• Box 3: This box is used to report the fair market value of the property at the time of acquisition.
• Box 4: This box is used to report any outstanding mortgage or debt on the property at the time of acquisition.
• Box 5: This box is used to report any cash or other property received by the lender in connection with the acquisition of the property.
• Box 6: This box is used to report any other information related to the acquisition or abandonment of the property.

In general, Form 1099-A is used to report information that is relevant to the acquisition or abandonment of secured property, and the specific information that is reported in each box will vary depending on the circumstances of the transaction.

Form 1099-A preview

How to file Form 1099-A?

Form 1099-A must be filed with the IRS by the last day of February following the calendar year in which the acquisition or abandonment of the property occurred.

To file Form 1099-A, you will need to complete the form and include all relevant information about the acquisition or abandonment of the property.

This will include the borrower's name and contact information, the date of the acquisition or abandonment, the fair market value of the property, and any outstanding mortgage or debt on the property.

You will also need to include any cash or other property that was received in connection with the acquisition of the property.

Once you have completed Form 1099-A, you will need to submit it to the IRS either electronically or by mail. If you are required to file 250 or more 1099-A forms, you must file electronically. Otherwise, you can choose to file by mail.

If you are filing by mail, you will need to print out the completed forms and mail them to the IRS. The mailing address will depend on the location of your business and the type of form you are filing.

NB! The IRS provides specific mailing addresses for different forms and locations on its website.

It is important to note that Form 1099-A is not the only form that may be required in connection with the acquisition or abandonment of secured property.

In some cases, you may also need to file Form 1099-C, which is used to report the cancellation of debt.

Pro tips for borrowers reviewing Form 1099-A

1. Keep good records: Maintain documentation of the property’s original purchase price, improvements, and depreciation to calculate adjusted basis accurately.
2. Understand your liability status: Check Box 5 to see if you were personally liable for the loan. This impacts whether canceled debt is taxable and how you calculate gains or losses.
3. Consult IRS publications: Refer to Publication 4681 for canceled debt and Publication 544 for property sales.
4. Seek professional advice: Tax rules for Form 1099-A can be complex. Consider consulting a tax professional, especially if you’re dealing with canceled debt, insolvency, or multiple 1099 forms.