Bankruptcy and Getting a 1099A
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A Recent Personal Bankruptcy Story
This recent personal bankruptcy statement was made on a bankruptcy website this past week: “I filed Chapter 7 and it went through and was discharged in May 2010. It took [my home mortgage company] forever to get the property back and they finally took the property back in May 2011. Today, I go to my mail box and I have a 1099A tax form. I didn’t think I would get this, since the property was included in a chapter 7 bankruptcy.”
Chapter 7 in Relationship to a Foreclosure
A Chapter 7 bankruptcy involves liquidating non-exempt assets to pay off unsecured debts. A home is not considered a part of the liquidation if it is exempted under the homestead exemption in bankruptcy or if the equity in the home is not enough for the bankruptcy trustee to justify selling it.
Foreclosure Results in 1099A Form
In the illustrated case above, the debtor who filed the Chapter 7, defaulted on the home loan and did not reaffirm it during the bankruptcy process. The foreclosure by the mortgage company was completed as of May of last year. The mortgage lender has sent the debtor a 1099A form because IRS tax laws require the mortgage lender to send the form to any homeowner abandoning their home and after the foreclosure process has completed .
The Reasons for Sending a 1099A Form
The 1099A form is sent because you may have had reportable income or loss when you acquired and then abandoned the property. A gain or loss due to your acquiring the property is measured by the difference between the adjusted basis of the property and the amount of your debt canceled in exchange for the property or the sale proceeds, if greater.
If you have abandoned the property, there is the possibility you might have income from the discharge of indebtedness. This comes about through the unpaid balance of your canceled debt.
IRS Tax Consequences of Receiving a 1099A Form
IRS tax consequences will depend on whether or not you are liable for the debt. If you are reliable for the debt, the loan is a recourse loan, but if you are not liable for the debt, the loan is considered to be a non-recourse loan.
If you have a loss on the acquisition of the property after abandoning, you cannot use the losses as a tax write off. But, if you have a gain on the property, the gain may or may not be considered taxable income, depending on whether or not the property is your primary residence.
Property in this case means any real property, any intangible property, and tangible personal property that is held for investment or used in a trade or business.
The 1099A Form and Relationship to other 1099 Forms
A 1099A form is not to be confused with other 1099 forms which involve personal income from a other sources outside of employment from an employer. If you have a co-signer on the debt for the property, each one of you should get a 1099A form.
Relationship Between Chapter 7 and 1099A Form
Filing a Chapter 7 should not influence whether you get a 1099A form. The form will come when the house is foreclosed on and abandonment occurs, regardless of whether or not you file a Chapter 7.
Related articles
- Bankruptcy and the Mortgage Forgiveness Debt Relief Act of 2007 (betterbankruptcy.com)
- Chapter 7 Questions and Potential Answers (betterbankruptcy.com)
- Bankruptcy & IRS Tax: Types, Requirements, & Discharging (backtaxeshelp.com)
- How Soon After a Foreclosure and Bankruptcy Can You Buy Another House? (betterbankruptcy.com)
