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The 1099-A is basically treated as a "sale of home" for the lower of FMV or amount of loan.
You will report the disposal of the home on your personal tax return. The disposal will be reported at the fair market value if you received the difference between the fair market value and the balance due on the loan. Else you will report the disposal at the loan amount due.
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
IF the fair market value was more than the loan balance outstanding than you are not liable for the outstanding balance. They must have satisfied the loan balance due with the proceeds from sale of property.