What is Form 1099-A?
Form 1099-A, Acquisition or Abandonment of Secured Property, is an informational federal tax form used to report the amount of debt and the fair market value of the secured property on the date of the acquisition or the abandonment of property.
Lenders, such as financial institutions and banks, use the IRS 1099-A Form to notify the IRS that your secured property was foreclosed, your mortgage was canceled, or your property was sold in a short sale. Lenders can also file a 1099 A Form if they believe that the property has been abandoned. If you have multiple mortgages on foreclosed properties, you will receive several 1099-A forms from your lender or lenders. 1099-A forms are sent out on January 31st every year.
If you borrowed money from a lender to purchase a house, but you couldn’t make payments on the remaining amount, the IRS will consider the unpaid amount as part of your income. The amount the lender entered in the form is now a canceled debt.
In reporting the information in your tax return, you need to use the information in the 1099-A Form. Enter the required information on Schedule D of Form 1040, Capital Gains and Losses. Schedule D is a form attached to Form 1040, U.S. Individual Income Tax Return, and it is used by the taxpayers to compute capital gains or losses and their taxes due.
Even if there wasn’t a sale under the foreclosure or abandonment of secured property, you still need to report under Schedule D of Form 1040 the “sales price” of the property. Use either the outstanding loan balance or the fair market value in entering the sales price. Gains or losses can be calculated by subtracting the tax basis in the house from the house’s fair market value. Don’t include the improvements you made in the house.
However, if you are not liable for any remaining debt on your loan, you won’t be using the fair market value. Use the outstanding mortgage balance at the time of the foreclosure instead of getting the sales price.
Apart from Schedule D of Form 1040, you can also use Form 8949, Sales and Other Dispositions of Capital Assets, as long as the property is not used for business. But if the property is used for business, use Form 4797, Sales of Business Property.
You may download Form 1099 A and other mentioned forms on the IRS website. For convenience, you may electronically fill out Form 1099-A on PDFRun.
How to fill out Form 1099-A?
The 1099 A Form has three copies, namely Copy A, Copy B, and Copy C. Each copy needs to be filled out with the required information. The left side of the form is about the lender and the borrower’s personal information, account number, and tax identification numbers. The right side of the form has six boxes about the acquisition or abandonment of the secured property.
All of the instructions provided below apply to all copies of the form.
Lender’s name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.
Enter the lender’s name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone number.
Enter the lender’s Tax Identification Number (TIN).
Enter the borrower’s Tax Identification Number (TIN).
Enter the full legal name of the borrower.
Street Address (including apt. no)
Enter the borrower’s street address. If their address has an apartment number, include it in this section.
City or town, state or province, country, ZIP or foreign postal code
Enter the borrower’s city or town, state or province, country, ZIP, or foreign postal code.
Enter the borrower’s account number.
Item 1 - Date of lender’s acquisition or knowledge of abandonment
Enter the date when the lender acquired or when the lender first knew the property was abandoned.
Item 2 - Balance of principal standing
Enter the outstanding balance of your loan on the date when the lender knew the property was abandoned or when the property was acquired. You should only enter the principal amount of the loan and do not include the interests, fines, or penalties if any.
Leave Item 3 blank.
Item 4 - Fair Market Value of Property
Enter the fair market value of the property. If the amount under this item is lower than the amount on Item 2 and your debt is canceled, you may have a cancelation of debt income. You should also receive a 1099-C form, Cancellation of Debt.
Item 5 - Check if borrower was personally liable for repayment of debt
Check the box if the borrower is personally liable for the repayment of debt when the debt was created or last modified.
Item 6 - Description of property
Enter the description of the property. The description required under this item also includes the address of the property. If there isn’t enough description, enter the lot, block, and section of the property.
How to file Form 1099-A?
The three copies of the IRS 1099-A Form shall be filed with the following:
- Copy A - The lender files must file Copy A of 1099-A Form along with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, with the Internal Revenue Service (IRS) Center.
- Copy B - The lender must furnish Copy B of the 1099-A Form to the borrower.
- Copy C - The lender keeps Copy C of the 1099-A Form.
To complete IRS Form 1099-A, use the 2021 General Instructions for Certain Information Returns and the 2021 Instructions for Forms 1099-A and 1099-C. You can get a pdf copy of these instructions at the IRS website.
Copy A of Form 1099-A IRS must be filed with the IRS Center by February 28, 2022, if you are filing a physical copy. If you are filing an electronic copy of Copy A, you must file it on or before March 31, 2022.
The IRS does not provide a fill-in option for Copy A. Hence, the electronic copy must be filed using software that generates a file per Pub. 1220, Specifications for Electronic Filing of Forms.
Furnish Copy B of Form 1099-A IRS to the borrower not later than January 31, 2022.