IRS Form 1099-A, titled “Acquisition or Abandonment of Secured Property,” is a tax form used primarily in situations involving foreclosure, repossession, or abandonment of property. It is typically issued by a lender when a borrower fails to repay a loan secured by property, such as a mortgage.
Purpose of IRS Form 1099-A
The main purpose of Form 1099-A is to report to the IRS the transfer of ownership or control of secured property. This occurs when:
- A lender takes back property through foreclosure or repossession.
- A borrower voluntarily abandons the property to the lender.
Lenders must file this form to notify the IRS of the transaction and provide the borrower with a copy for tax filing purposes.
Key Information Reported
Form 1099-A includes several important pieces of information that are relevant for tax calculations:
- Date of acquisition or abandonment
- Fair market value (FMV) of the property at the time of transfer
- Balance of principal outstanding on the loan
- Whether the borrower was personally liable for the debt
This data helps determine whether the borrower has experienced a gain or loss and whether additional tax is due.
Tax Implications for Borrowers
Receiving a Form 1099-A doesn’t automatically mean the borrower owes extra taxes, but it can have tax consequences. The IRS treats foreclosure or abandonment as a sale or disposition of property. This may result in:
- Capital gain or loss: If the value of the property is different from the remaining loan balance.
- Cancellation of debt income: If the lender forgives part of the debt, which may be reported on a separate Form 1099-C.
However, certain exclusions or exemptions may apply, such as insolvency or qualified principal residence exclusions.
Filing Requirements
Lenders must send Form 1099-A to borrowers by January 31 of the year following the event. Borrowers may need to use this form to complete Form 8949 and Schedule D when filing their federal tax returns.
Conclusion
IRS Form 1099-A is a crucial document in the event of foreclosure or property abandonment. It helps the IRS track property transactions and informs taxpayers of possible tax implications. Understanding this form ensures accurate reporting and helps avoid unexpected tax liabilities.
Dimov Tax stands ready to present assistance with IRS Form 1099-A matters. Contact us today for financial clarity and full compliance.