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Lev
Lev, Tax Advisor
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I need to know more about how to use the 4797 in a foreclosure

Resolved Question:

I need to know more about how to use the 4797 in a foreclosure in bankruptcy for an upside down property. Do I make the initial listing under section 1 or 3? I did not get a 1099 for the associated HELOC so do I just list the primary mortgage, and list the FMV as the sale price? This shows I had a loss however and although I know it is not a loss because of the bankruptcy, is it not actually a gain? How do I record this?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to our site!
If the property is disposed in foreclosure - that transaction is reported as the sale.
In general - we need to use the fair market value as a sale price
If that a non recourse loan - we need to use the amount of the loan outstanding as a sale price.

Customer:

Thank you. So loan outstanding is sale price and how do I reflect it was upside down in terms of the FMV or is this necessary in a non recourse loan?

Lev :

That doesn't matter for your reporting.
You need to know two items - selling price and the basis.

Lev :

If that was a non recourse loan - there is no COD income - and form 982 is not needed. However it is assumed that the property is sold for the amount of the debt outstanding - and we need to use the amount as a sale price.

Customer:

I got a 1099a. How do I report it or do I need to?

Customer:

Is it 4797 I do not need?

Lev :

The form 1099A reports the fact of the disposition.
Which state are you located?

Lev :

You need to report the disposition of rental property on form 4797.

Customer:

California is where the property was located but the taxes will be filed in NC

Lev :

As I know California is a non recourse state - and you should not expect form 1099C.

Lev :

A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.
See - http://www.irs.gov/uac/Home-Foreclosure-and-Debt-Cancellation
question 3. I lost my home through foreclosure. Are there tax consequences?
step 2 - item 4. Enter the fair market value of the property foreclosed. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________

Customer:

In cases of bankruptcy it does, correct? it was Ch 7

Lev :

Yes - that page addresses situation directly related to foreclosure - regardless if it is under the bankruptcy procedure or not. We still need to report the disposition of the property.
The difference in reporting is based only if that is a recourse or non recourse loan.

Customer:

Is the HELOC a non recourse and the regular loan a recourse, and do I report the Helopfc for which I did not get a 1099?

Lev :

For the recourse loan - you should receive 1099C - do you have it?

Customer:

Yes

Customer:

No a 1099a not a 1099c

Lev :

If from 1099c was not issued - and you are not responsible for teh balance outstanding - most likely that is a non recorse loan.
Form 1099A reports teh fact of teh disposion - it doesn;t tell anything about the debt - if you are still responsible or the debt was discharged.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22958
Experience: Taxes, Immigration, Labor Relations
Lev and 2 other Tax Specialists are ready to help you
Expert:  Lev replied 1 year ago.
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Expert:  Lev replied 1 year ago.
Just in case you were not able to use the chat - I am switching to Q&A mode and posting the answer below.
Please feel free to communicate if you need any clarification or have other tax related issues.

If from 1099c was not issued - and you are not responsible for the balance outstanding - most likely that is a non recourse loan.
Form 1099A reports the fact of the disposition - it doesn't tell anything about the debt - if you are still responsible or the debt was discharged.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22958
Experience: Taxes, Immigration, Labor Relations
Lev and 2 other Tax Specialists are ready to help you

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Lev
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Taxes, Immigration, Labor Relations