- March 24, 2023
There are many different categories of the IRS 1099 forms and Form 1099-A are used to report the acquisition or abandonment of secured property. This is predominantly an information Form that is sued to report foreclosure on a property. Tax Payers will receive this Form if the mortgage lender foreclosed the property and canceled some or the entire mortgage. The mortgage lender will also send this Form if he has sold the property in a short sale. Those with more than one mortgage on the foreclosed property can expect to receive separate Form 1099-A from each lender.
Form 109-A Instructions
As the IRS considers the canceled debt from selling a mortgage as income, it expects the taxpayers to report this income through Form 1099-A. For example, if a person borrows money from a lender to purchase a home but cannot pay back the money, then this money that is not paid is considered income.
Who files Form 1099-A?
This tax Form is predominantly used by lenders, such as financial institutions and banks, to inform the IRS when a property is sold or transferred, secondary to a foreclosure. There are three copies to Form 1099-A. The lender files copy A of the Form with the IRS, sends Copy B to the taxpayer, and retains Copy C for its records. Taxpayers need not file this Form with their returns but keep it for their records.
How is Form 1099-A used?
The mortgage lender will file Form 1099-A with the IRS. They will also send a copy of the Form to all the borrowers listed on the foreclosed loan. Then each of the borrowers should report this information from their Forms on their tax returns. The lender should send a copy of Form 1099-A before January 31st of the tax year following the foreclosure. The lender will also send a copy of this Form to the IRS by February 28th of the tax year.
Taxpayers will use the information on Form 1099-A on the Schedule D of Form 1040, which is used to report capital gains and losses. This information will also be reported on Line 7 of Form 1040. For writing the sales price, taxpayers can use the outstanding loan balance or the fair market value. The fair market value can be copied from Box 4 of Form 1099-A.
Box 5 of the Form will give information on whether the taxpayer is liable for repayment personally. If this box is checked, the lender can pursue the taxpayer to collect the outstanding balance they could not recover by selling this property. This outstanding balance will be reported as the sales price and should be entered in Box 2 of Form 1099-A.
IRS Form 1099-A is one of the many information return forms in the mail. After reporting the information on this Form, the taxpayer should retain it for records. They can contact the lender if the information found in this Form needs to be corrected.
