Receiving IRS Form 1099-A, Acquisition or Abandonment of Secured Property, can be confusing and stressful—especially if you’re unsure how it affects your taxes. While the form itself doesn’t always result in a tax bill, it can lead to taxable income depending on your situation. Understanding what the form represents and how the IRS treats it is key to avoiding surprises.
What Form 1099-A Represents
Form 1099-A is issued when a lender acquires property through foreclosure, repossession, or when you abandon the property tied to a loan. The IRS treats this event as a disposition of property, much like selling an asset. As a result, you may need to report a capital gain or loss on your tax return.
The form includes key information such as:
- Date of the event
- Fair market value (FMV) of the property
- Principal outstanding on the loan
- Whether you were personally liable for the debt
When Taxes May Be Owed
Receiving Form 1099-A alone does not automatically mean you owe taxes, but it can lead to two possible tax consequences:
1. Capital Gain or Loss
The IRS may consider the foreclosure or abandonment as a sale. If the fair market value of the property is greater than your adjusted basis (usually what you paid plus improvements), you could owe capital gains tax. Conversely, a loss might not be deductible, especially if the property was your personal residence.
2. Cancellation of Debt (COD) Income
If the lender forgives the remaining balance on the loan, you might receive a Form 1099-C in addition to Form 1099-A. The forgiven debt may be considered taxable income unless you qualify for an exclusion (e.g., insolvency or bankruptcy).
Exceptions and Exclusions
You may not owe taxes if:
- You were insolvent at the time of the foreclosure.
- The debt was discharged in bankruptcy.
- The property was your primary residence, and you qualify for the Mortgage Forgiveness Debt Relief exclusion.
Does Form 1099-A Mean I Owe Taxes to the IRS?
Receiving Form 1099-A does not always mean you owe taxes, but it does signal a potentially taxable event. To determine your exact tax liability, it’s important to review the form carefully and consult a tax professional if needed.
If you are unsure, contact Dimov Tax today for expert assistance. Our dedicated team presents professional aid with Form 1099-A matters.