Need Help

[cantup]

Have a client with form 1099-A (Acquisition or Abandonment of Secured Property).

Box 2 Balance of principal outstanding $34572

Box 4 Fair Market value of property $50100

Box 5 Was borrower personally liable for repayment of the debt? Yes

Can you please give me some advise where do I have to report these amounts on Federal Return 1040.

Thank you

[LindaB]

Have a client with form 1099-A (Acquisition or Abandonment of Secured Property).

Box 2 Balance of principal outstanding $34572

Box 4 Fair Market value of property $50100

Box 5 Was borrower personally liable for repayment of the debt? Yes

Can you please give me some advise where do I have to report these amounts on Federal Return 1040.

Thank you

Was it taxpayer's primary home, or rental property, or investment property, or what?

[cantup]

Was it taxpayer's primary home, or rental property, or investment property, or what?

Sorry!

It was her primary home, do I need to file form 982?

[LindaB]

It was her primary home, do I need to file form 982?

No, you don't need form 982 because the 1099-A only shows the transfer of ownership from the taxpayer to the lender, it does not show any cancellation of debt.

A 1099-A should be reported as a sale, so you need the taxpayer's basis in the home. The sales price in your case is $34,572, the smaller of outstanding principal and FMV. A loss on a personal residence is not deductible, and the gain may be excluded under sec. 121 so you have to look at that.

There has been some disagreement on this board about whether or not you have to actually report this for the taxpayer's primary home, if there is a gain and they would qualify for the sec. 121. Some very smart and well respected people say you don't have to report it, and some of us would go ahead and report it anyway, so you can decide for yourself.

I think that the lender does not report cancellation of debt income on a 1099-C until they have actually sold the property. If they foreclosed in 2007 and don't sell the property until 2008, (and sell it for less than the loan amount) your taxpayer may get a 1099-C for 2008. Then you would use form 982.

[LindaB]

Here's an interesting article on foreclosures (I know 4/15 is a bad time)

http://biz.yahoo.com/ap/080415/foreclosure_rates.html

From the article:

Foreclosure Filings Against US Homeowners Soar 57 Percent in March; Bank Repossessions Surge

The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.

...estimates between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further.