Preparing Income Taxes - How Do I Report Information on a 1099-A?

The reporting of any cancellation of debt (COD) involves two different information documents; an IRS Form 1099-A, Acquisition or Abandonment of Secured Property and an IRS Form 1099-C, Cancellation of Debt. An IRS Form 1099-A is specifically provided to both tax authority and tax payer when a lender forecloses, repossesses, or has reason to suspect property is abandoned. Whether or not you receive either of these documents in a timely fashion, you must report cancellation of debt you have owed on your personal income tax. Acts of repossession, abandonment, or foreclosure are treated as a sale or exchange of property and the rules of gain or loss apply. Any income arising from the cancellation of a recourse debt is taxable whether or not property is returned or surrendered.

The IRS Form 1099-A is information form that includes the balance of outstanding debt, the fair market value of the property involved, a description of the property, and whether the debt is classified as recourse or non-recourse. Specifically, in Box 5, a "Yes/No" check box indicates whether or not the borrower is personally liable for repayment of the debt. The information in this single box on the form is critical because, if the box is marked "No", the debt is classified as non-recourse; that is, the borrower is not personally liable for the debt. In the case of a recourse debt however, the buyer is not only liable but, under cancellation of that debt, may have a gain, and thus additional taxable income, from the removal of the burden to repay the obligation. Where a recourse loan leads to foreclosure or repossession, the Form 1099-A provides critical information about additional taxes owed on that debt-generated income.

The sale information reported on a Form 1099-A is transferred to the IRS Form 1040 Schedule D, Capital Gains and Losses if the property was categorized as personal - use and there was a reported gain; losses are not reported. If the property was considered an investment, information is entered on Schedule D and ordinary gain/loss rules apply to the transaction. If the Form 1099-A describes business property, an IRS Form 4797, Sales of Business Property is completed and the results are, in turn, transferred to IRS Form 1040 Schedule C (business, sole proprietorship), E (rental), or F(farm).

The proper transfer of information from an IRS Form 1099-A to your income tax return is best left to an experienced tax preparer. You should expect to also include an IRS Form 1040 Schedule D with your tax return. Do NOT overlook COD events when filing your income tax return. For more information, visit the IRS website, IRS.gov.