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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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I was going thru a divorce, the bank got frustrated and

Customer Question

I was going thru a divorce, the bank got frustrated and foreclosed on my business to try and recoup the balance of a loan. if the loan is not fully satisfied and I have lost my business how is this treated for tax purpose?
Submitted: 4 months ago.
Category: Tax
Expert:  emc011075 replied 4 months ago.

Hi. My name is ***** ***** I will be happy to help you.

The business will be treated as sold or disposed for tax purposes. The bank will issue a 1099A that you will use to complete form 4797 - Sale of business property. If the loan is not fully satisfied with the sale of business, the bank will issue you 1099C - Cancellation of debt that will be your taxable income.

Customer: replied 4 months ago.
do the losses from the business offset 1099C?
Expert:  emc011075 replied 4 months ago.

If you receive 1099A and 1099C in the same year, than yes. But it is not always the case. It usually takes the bank several month to cancel the outstanding debt and issue you 1099C.

1099A is transfer of ownership from you to the bank

1099C is cancellation of the outstanding debt

Those are two separate tax events.

Customer: replied 4 months ago.
the bank creates this mess because they decide to foreclose and I am liable???
Expert:  emc011075 replied 4 months ago.

If you borrowed money against the business and are not repaying the loan, the bank has right to take away your property to satisfy the loan. The bank is not creating the mess. If, after bank sells the business, there's still outstanding loan, the bank forgive you the balance, meaning you do not have to pay it back but it will be treated as taxable income.

You can try to sell the business on your own instead of waiting for the bank to foreclose and sell it on an auction for 30 - 40% less than the actual value of your business.

Customer: replied 4 months ago.
ok, thank you, ***** ***** me some guidance, I just don't see how its my mess as the business was viable and there were never issues with payments to the bank. the bank just wanted out and they took the business
Expert:  emc011075 replied 4 months ago.

Hold on. You are saying that the bank wants to foreclose despite you making loan payments?

Customer: replied 4 months ago.
the bank decided that after 24 months of the divorce proceedings and the uncertainty of the out come, that it would not renew the line of credits and also demanded payment in full of the term loan. so all obligations were called by the bank. payments were always made, there were no arrears, the bank notified all our customers to send payments directly to the bank. no cash flow to operate to the business closed and all assets were relinquished to the bank. I have no business, no assets, no money and I am trying to determine tax issue with this. this all happened in 2015 by the way.
Expert:  emc011075 replied 4 months ago.

Hm, I am not an expert in business law but it sounds like a case for a lawyer.