Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

Hi, for a California non-recourse foreclosure, a person should

only receive a 1099-A with...
Hi, for a California non-recourse foreclosure, a person should only receive a 1099-A with box 5 checked as No (Not personally liable for the debt), and a 1099-C should not be issued as there is no cancellation of debt, right?

A lot of national banks seem to be issuing both a 1099-A with Box 5 as Yes, and a 1099-C - seeming as a matter of policy, ignoring any state laws. What would we do with regards XXXXX XXXXX taxes? Technically we should not have to file the COD as income because a 1099-C should never have been issued in the first place. The 982 form does not have a check box for exclusion of the COD due to the non-recourse nature of the loan. Home technically does not qualify under the Mortgage Debt Relief Act because owner moved out and lived somewhere else before it foreclosed.

Home in question was bought with purchase-money loan, never refinanced, and owner occupied for 2 years. Owner moved away for a job, couldn't sell the home, and then rented it out for less than 3 years. No bankrupcy, not insolvent. As it was created as a non-recourse mortgage, it should still remain non-recourse, and no cancellation of debt incurred as a result of foreclosure, correct?
Show More
Show Less
Ask Your Own Tax Question
Answered in 1 hour by:
5/6/2009
Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1,561
Experience: 22 years of tax preparation experience, including individual, trust, and estate returns.
Verified
Dear "Solaris",

Thank you for using Just Answers.

The instructions for forms 1099-A and 1099-C specify:

If, in the same calendar year, you cancel a debt in connection with a foreclosure or abandonment of secured property, it is not necessary to file both Form 1099-A and Form 1099-C, Cancellation of Debt, for the same debtor. You may file Form 1099-C only. You will meet your Form 1099-A filing requirement for the debtor by completing boxes 5 and 7 on Form 1099-C. However, if you file both Forms 1099-A and 1099-C, do not complete boxes 5 and 7 on Form 1099-C. See the instructions for Form 1099-C on page 2.

As for whether the lender is supposed to file a form 1099-C, if there was negotiation about the debt, even if that negotiation didn't result in any change other than from the abandoment, a 1099-C can technically be issued. But it shouldn't effect Box 5 on forms 1099-A or 1099-C.

Although this is outside my area of expertise, being a legal question, it appears that California Code of Civil procedure section 580b prohibits a "deficiency judgment" from being obtained on a purchase money loan. However, that may not be the same as loan being non-recourse.

Is it possible that renting out the property violated the terms of the loan, requiring a "refinance"?

I wish I could be of more help, but this question falls on the boundary between "tax" and "property law".
Ask Your Own Tax Question
Customer reply replied 8 years ago
Thanks for the attempt anyways. Yeah I had already done extensive research and ran across those 1099-A and 1099-C instructions for the loaning instutions.

And no, loan documents don't have any stipulations on renting - only that to be owner-occupied, you have to move in and live there within 60 days, and for a period of at least a year (Rent Skimming deterrent). Owner couldn't refinance anyways since at the time that they moved out, the value of the property was below the value of the note.
It looks as if you've already done as much research as I can do. I'll opt out to let someone else have a shot at it.
Ask Your Own Tax Question
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Verified

Dear solaris,

 

With your permissino I would like to tranfer your question to our law department.

 

Your question is not really tax related.

 

The issue it seems you have is really: is there anything in California law that mutates non-recourse debt to recourse debt, when it is converted to rental use rather than personal use. (there is nothing to this effect in the mortgage documents)

Ask Your Own Tax Question
Customer reply replied 8 years ago
Yes, please go ahead and transfer to the tax department. When I entered the question, I wasn't aware that there were different departments I could post under.

To reilliterate some points: purchase money loan in California, single-unit townhome, owner-occupied for two years, never refinanced. Currently not primary residence, no bankrupcy or insolvency. Rented for less than 3 years.

I've seen similar foreclosure situations where the bank had issued a 1099-A with Box 5 marked as Yes, and a 1099-C also issued. Since it was their primary residence, the Cancellation of Debt was excluded due to the Mortgage Debt Relief Act with IRS form 982. Technically, the 1099-A Box 5 was wrong as it was an owner-occupied, purchase-money loan in California - and it had gone through a non-judicial foreclosure, which by California's Single Action law makes it a non-recourse at that point even if the loan was originally recourse.

So assuming loan is still non-recourse (research so far shows nothing to say otherwise), if owner gets a 1099-A with Box 5 marked as Yes, what do they do if the mortgage holder refuses to correct the 1099-A? They can't easily exclude the COD using the Debt Relief Act. Thanks.

Dear Solaris,

 

Lets make this easy.

 

If you are not satisfied let me know.

 

By law in California this is a non-recouse debt. Confirmed by California Civil code 580b

 

This is true even if say, you had a four unit building and rented out the other three, and lived in one unit.

 

It is true because according to the language in the code, as long as you lived in it any part of the time as a primary residence,then by that code, it does not mutate to recourse debt.

 

Loans get sold between investors and mortgage companies, and I do not know if the lender in question was the original or is a resident or alien (other state) mortgage company.

 

but despite that, you are correct that this should not attract cancellation debt income.

 

The lender may issue the 1099 anyway. I can not address why they checked certain blocks, except to say that these are automated systems and so are batched. You may simply be the victim of a batch; and they may not correct the 1099.

 

What you do is file a paper return, and on the 1099C, write a not that this is a California non-recourse loan. Include in your note that the institution refuses to provide a corrected 1099-C.

 

The same thing is true of the 1099-A.

 

Box 5 indicating if you ar responsible for the debt refers to:

Enter an "X" in the applicable box to indicate whether the borrower was personally liable for repayment of the debt at the time the debt was created or, if modified, at the time of the last modification.

 

Who ever at the bank is reading the instructions may be confused. When you read that language of the instructins it makes it sound like you ar responsible if you had a loan.

 

But the actual meaning has to do with being a recourse debt.

 

You can contact the IRS about this, and let them know the lender refuses to modify the loan. California is really an exception and many non-california lenders are unaware of the issues there. If this is a california resident lender I can not say why they are not aware.

 

For nonrecourse loans there would not be any cancellation of debt income and the property is treated as being sold for the balance of the mortgage.

 

so you should not have received a 1099-C except that the company may have been trying to comply with the requirement to provide the 1099-C even if you are not lible for the debt.

 

the solution is to get amended 1099-A and C. However if they will not do it, then contact the IRS for assitance. The IRS can help to get corrected 1099's. You may be instructed to file and to submti the 1099's along with a note explaining the discrepancies.

 

Let me know if this meets your needs or if you have further questions.

 

 

 

 

 

 

Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Verified
Ed Johnson and 87 other Tax Specialists are ready to help you
Ask your own question now
Customer reply replied 8 years ago
Ok, thanks for your confirmation. I just needed to make sure there were no prior cases of non-recourse loans becoming recourse by nature of the primary residence being turned into a rental, either by state law, or IRS code.

If you happen to run across anything that says otherwise, please update!

I checked the California Case law, and all I could find related to this, in the tax court involved refinancing.

 

So for example, a person was forced to refinance as part of a divorced settlement; the court held that the refi was a non-recourse.

 

The other was where a person had violated the terms of the mortage, so the finance company forclosed, forcing the person to refi the loan.

 

You can search tax court case decisions at this link: http://www.ustaxcourt.gov/

 

Ask Your Own Tax Question
Customer reply replied 8 years ago
Ok, thanks for your help, much appreciated.

You are welcome.

 

Best of luck with this.

Ask Your Own Tax Question
Ask Ed Johnson Your Own Question
Ed Johnson
Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10,760
10,760 Satisfied Customers
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee

Ed Johnson is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
I just received a letter from the state of California
I just received a letter from the state of California franchise tax board it says I've been accessed a $200.50 penalty pursuant to section 19141 of the administration of franchise in income tax law fo… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
734 satisfied customers
I am completing my personal income taxes. For this filing
I am completing my personal income taxes. For this filing year, I left my corporate career to manage my real estate full time. Therefore, the real estate is moving from a passive activity to an active… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Are you familiar with income tax laws on business and
Are you familiar with income tax laws on business and personal returns? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Can I report rental income in my tax return on a property
Can I report rental income in my tax return on a property thar is owned by my father? He does not live in the US is not a US citizen and can sign a document to allow me to receive the rental… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
How to report cancellation of debt on rental property?
I received a 1099-C for my rental property that I held for over 1 year. According to the worksheet provided in IRS Publication 4681 I was insolvent just prior to the debt being canceled. My question i… read more
Arthur Rubin
Arthur Rubin
Tax Preparer
1,561 satisfied customers
Is there a retail inventory tax for the state of California?
Is there a retail inventory tax for the state of California and how does it differ from other states? Is it just a federal tax or is there no tax?… read more
DanielleCPA
DanielleCPA
Certified Public Accountant
Bachelor's Degree
76 satisfied customers
Does a non-resident alien need to file a tax return on
Does a non-resident alien need to file a tax return on interest income received from a US business loan?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
For a ny state partnership tax return, if you file an
For a ny state partnership tax return, if you file an extension but don't pay anything and then end up owing a lot. Do they still recognize the extension or do they charge a failure to pay penalty (fo… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Form 1099-C (2016) Cancellation of Debt Box 7 Fair market
Form 1099-C (2016) Cancellation of Debt Box 7 Fair market value (FMV) of property shows zero. Why zero? The FMV is the most frequent figure on Form 1099-C. The amount in Box 2 is 111,xxx. Box 1 Date o… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I filed for an extension to file my 2017 income tax return.
I filed for an extension to file my 2017 income tax return. I recently suffered a stroke - 6 weeks ago - and have been unable to finalize my return. I should be able to file it within the next 30 days… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,473 satisfied customers
For a California trust's final return there will be unused
For Barbara: For a California trust's final return there will be unused capital losses left over. All the beneficiaries are California resident individuals. The trust is administering a decedent's est… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Lane I am using tax software for 1099c cancellation of debt
For Lane: Lane I am using tax software for 1099c cancellation of debt and the box that asks for "debt cancelled while insolvent" it has to be equal or less than the cancellation amount? I thought you … read more
Chad Schoch
Chad Schoch
Bacehlors of Business Administration
20 satisfied customers
I am a resident Alien. (H1B). I file my taxes jointly with
I am a resident Alien. (H1B). I file my taxes jointly with my Wife (Working on H4 EAD work permit). My Father-in-law wants to loan us money for a few months (about 20,000 $) from his savings. He plans… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I am receiving a 1099c form (cancellation of debt) and I
I am receiving a 1099c form (cancellation of debt) and I wanted to know if social security counts that cancelled income towards wages earned? I am only aloud to make about $1000 roughly a month workin… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,220 satisfied customers
I am getting a 1099c form (cancellation of debt) and I am on
I am getting a 1099c form (cancellation of debt) and I am on Social Security Disability SSDI. Does this mean my social security SSDI becomes taxable? I will have to pay taxes on the 1099c but I am thi… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Lev, where in the california return form 100s one report the
Good evening Lev, where in the california return form 100s one report the tax withholding from 1099k. Does this tax withholding flows through personal tax return or applies towards 100s estimated paym… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
TO TAKE THE CANCELLATION OF DEBT INCOME OFF OF THE TAXABLE
I AM TRYING TO TAKE THE CANCELLATION OF DEBT INCOME OFF OF THE TAXABLE INCOME AND HAVE ANSWERED ALL OF THE QUESTIONS CORRECTLY. THE WORKSHEET SHOWS THAT NONE IS TAXCABLE BUT THE AMOUNT CONTINUES TO SH… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,473 satisfied customers
Today I received an IRS Form 1099-C from Investment
Today I received an IRS Form 1099-C from Investment Retrievers for a debt I incurred 6 years ago, and settled earlier this year. The debt was $5,100 that I settled through Investment Retrievers for $1… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,220 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x