Pacun Posted March 27, 2011 Report Share Posted March 27, 2011 Sometimes is easier to post questions when you know a little bit about the subject. The ones that don't understand the subject are a little shy. Since I am very shy about a lot of subjects, I want to bring this one up... so here you go. It is my understanding that banks mail a 1099-C when they consider that their money is gone for good or for the foreseeable future. Banks do that so they can get a tax break for that “casualty” loss. At the moment a bank reposes a house they issue a 1099-A, but if people have abandoned the house, they will not get the 1099-A and not report the sale. Even if they get a 1099-A, most of the time they don’t get the 1099-C because they moved. Since they are afraid that the bank will come after them, they don’t provide their new address to their creditors. This is the way I deal with 1099-A and 1099-C. Do you think this is the right way to deal with a 1099-A? I dispose of the asset using the FMV on the 1099-A as the selling price. I ask people for their basis. If the basis is not available AND there is only one loan, I use the amount of the loan owed from the 1099-A and use it as a basis. Sometimes this will trigger Schedule D with a passive loss and a $3K deduction. I do not want that and I classify this debt as personal. If the client is insolvent, I will use personal classification even if rental property since I will use form 982 to cancel any debt forgiven. If a bank issues a 1099-A and a 1099-C on the same year, I will file a disposition of the asset to deal with the 1099-A and a 982 form to deal with the 1099-C, correct? I will do this even if the client is not “personal liable for the debt”. (Remember that 1099-C was already issued) If the bank waits 5 years to give up on the debt and issues a 1099-C, I will use the financial status of my client 5 years later, correct? At that point, I will use form 982 if my client is insolvent or if the property was his primary home. I will also use form 982 if my client filed for bankruptcy and that debt was included in the proceedings. If you are a bank and a client sent you bankruptcy papers for the debt, what will you do? You will issue a 1099-C immediately and get a tax break, correct? What is the client never sent those documents to the bank since the bank is not harassing the client anymore? I believe the bank will eventually issue a 1099-C and you will file form 982 at that point. When clients come to me and they say they are about to give up their homes, I tell them to expect two or 3 forms: a 1099-A and two 1099-Cs if they have two loans. I also explain to give the bank their new address. When they tell me, that they don’t want the bank to find them, I reply: When you applied for the loan, you gave your bank your social security number, bank account information, the name and address of the employer, the name of a relative not living with you, etc. If they look for you they will find you now or 10 years later. The ones with half brain and above understand after I tell them that. I would like this posting help all of us to follow the right procedure since this is a tricky, new subject. Quote Link to comment Share on other sites More sharing options...
Randall Posted March 28, 2011 Report Share Posted March 28, 2011 This is indeed tricky. I can't address your situation. But here's one of my own. LLC, 2 members 50-50 owners, 1065 reporting. Bldg sold for 550k, basis 680k, debt 800k. Debt in LLC name, members as guarantors. No 1099-A or 1099-C issued. But bank sent letter stating that if bldg sold at the 550k price, they would release members from debt balance. Form 1065 has a question asking if any debt was forgiven so must answer yes. Since this is recourse, I'm showing sale at 550k minus basis 680k, loss of 130k. Cod income of 250k. Round numbers. On 1065, sch k will show loss of 130k, cod income of 250k. Each K-1 will show half, box 10 loss of 65k and box 11 code E cod income of 125k. Correct so far? On 1040, if memeber is insolvent, would full 125k be shown on 982 and zero out the cod income leaving the loss of 65k still showing on 1040. Or would I net this loss against the cod income, leaving 65k cod income and showing only 60k on the 982 as amount not included. Then the 1040 would show loss of 65k and cod income of 65k. This seems stange and I'm wondering how this gets reported and flows to the 1040 properly. Any help is appreciated. 1 Quote Link to comment Share on other sites More sharing options...
chadlonetree Posted March 28, 2011 Report Share Posted March 28, 2011 Do you think this is the right way to deal with a 1099-A? I dispose of the asset using the FMV on the 1099-A as the selling price. I ask people for their basis. If the basis is not available AND there is only one loan, I use the amount of the loan owed from the 1099-A and use it as a basis. Sometimes this will trigger Schedule D with a passive loss and a $3K deduction. I do not want that and I classify this debt as personal. If the client is insolvent, I will use personal classification even if rental property since I will use form 982 to cancel any debt forgiven. I find when I am doing this, the losses are heavy. I use the FMV from 1099-A as the selling price. Most of the times the amount loaned becomes the basis (because I can't get enough info to completely figure the basis). Then I do a program override and change their loss to $0 (column f) so it does not trigger a Sch D $3k loss. Thanks for posting this. Looking forward to everyone's thoughts. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted March 28, 2011 Report Share Posted March 28, 2011 On 1040, if memeber is insolvent, would full 125k be shown on 982 and zero out the cod income leaving the loss of 65k still showing on 1040. Or would I net this loss against the cod income, leaving 65k cod income and showing only 60k on the 982 as amount not included. Then the 1040 would show loss of 65k and cod income of 65k. double check, the Insolvency might be at the partnership level. Its been years since i had anything similar but that sticks in my head. Quote Link to comment Share on other sites More sharing options...
Randall Posted March 28, 2011 Report Share Posted March 28, 2011 double check, the Insolvency might be at the partnership level. Its been years since i had anything similar but that sticks in my head. The partnership is definitely insolvent. It's done. But I thouht these items passed thru, especially since the partners were guarantors on the loan. Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 2, 2011 Author Report Share Posted April 2, 2011 Bringing it to the top for ljwalters Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted April 2, 2011 Report Share Posted April 2, 2011 Manny, your post helped me today. Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 2, 2011 Author Report Share Posted April 2, 2011 Manny, your post helped me today. I am glad it helped you. I will bother you with some corporations Marco but I will wait until after April. Quote Link to comment Share on other sites More sharing options...
ljwalters Posted April 2, 2011 Report Share Posted April 2, 2011 I am glad it helped you. I will bother you with some corporations Marco but I will wait until after April. Thanks Pacun Linda Actually I had already read this once, I think I,m just brain dead and a little fogggggyyyyy from hayfever meds. Quote Link to comment Share on other sites More sharing options...
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