Yes this is correct. Being non recourse loan, this would be the preferred manner of reporting.
Here is a link for your reference
see example 5 step II
So no schedule D and no form 982?
Yes, that is correct. Since there is no taxable gain, no Sch D is required.
Also, you do no have cancellation of debt income and so no exclusion on Form 982 is required
You will report the sale on the Worksheet and you can include a note stating that this was a non recourse loan.
I don't like the fact that the 1099A has box 5 marked "yes" saying that I am personally liable for repaying the debt. Will that send a red flag to the IRS?
You can include a note that this is a non-recouse loan. Alternatively, you can ask the lender to amend the Form and issue it to you.
Thank you very much!