Form 1099-A, foreclosure, and bankruptcy cases

Recently the IRS has been sending out a blizzard of forms 1099-A to homeowners who lost their house to a foreclosure or short sale in 2011. Since so many homes have been lost this way in the Merrimack Valley and southern New Hampshire recently, a lot of folks have been getting them.

The 1099-A Form is called “Abandonment or Acquisition of Property.” The business end of the form has a box listing the date of the foreclosure, another with the balance of the principal outstanding on the loan, and an estimate of the property’s fair market value — calculated by God only knows what method. There is also a check box to indicate if the borrower was “personally liable” for repayment of the debt.

If you have filed a bankruptcy case recently, this form should cause you no problems with your taxes. First of all, it is NOT necessarily indicating that you debt was canceled by the lender — that would be reported on a 1099-C form.

Second, if you filed a bankruptcy case prior to the foreclosure, the “personally liable” box should not be checked.

In essence, if you have filed for bankruptcy, you are not personally liable for either the debt or the cancellation of the debt on your tax return.

As a last resort, you may want to have your tax advisor consider whether to file Form 982 along with your 2011 return; this will make it unmistakably clear that you do not owe additional income taxes as a result of your bankruptcy.

 

By Doug Beaton

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