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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 55311
Experience:  29 years of experience as a tax, real estate, and business attorney.
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My house was foreclosed last year. I had lived in it for one

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My house was foreclosed last year. I had lived in it for one year, and decided to retire.
Market fell and cost of mortgage and health insurance would have made life difficult.
In any event, the bank issued a 1099-A, which I have yet to receive. They listed the fair market value at $226,147, and principal owing as $210,552. The house was later sold for $111,000. I paid $301,000 for it.
I live in AZ, but currently just traveling. I would like to claim under the debt relief act. AZ does not allow a deficiency judgment. I assume that I may be liable for taxes.
I understand that there is 1099-C form, but it does not appear that the bank will be issuing one. Further, I do not have any of my paperwork as I had hoped that the house would have sold.
Not sure where I stand and would like to avoid an audit?

Good afternoon. A couple of things....but the botXXXXX XXXXXne is that you have no tax liability coming.


First, the 1099-A is simply an informational notice given when you have walked away from a property secured by debt. It is not necessary to include any amounts on the 1099-A on your tax return. Only when you get issued a 1099-C are you obligated to report it on your return. BotXXXXX XXXXXne, you need do nothing with the amounts on 1099-A.


Second, even if you do report it, you owe no tax. Normally, debt forgiveness results in taxable income. But under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude debt forgiven on their principal residence if the balance of their loan was $2 million or less. The limit is $1 million for a married person filing a separate return. Details are on Form 982 and its instructions.



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The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Customer: replied 6 years ago.
How does one get the 1099-C? When I called the bank, they just mentioned the 1099-A, and I would like to file my taxes as my only income is my pension, social security, and IRA. Should I use the 1099-A and treat it as a 1099-C, because the bank does send a copy of the 1099-A to IRS.
Because you are in AZ where the lender cannot pursue could go ahead and include it on your return for last year based on your 1099-A. But, here's the thing...based on the numbers on your 1099-A...i.e., a fair market value in excess of the amount really have no forgiveness of indebtedness to report.
Customer: replied 6 years ago.
Thank you, XXXXX XXXXX know this is pushing you, but having been a prosecutor for 25 years, I am slightly paranoid. So, do I just go ahead an file my tax return and wait and see if the bank issues a 1099-C?
Thanks again.
You're welcome. I would file your return and not include it. First, you don't have to report based on the 1099-A; second, based on the 1099-A, there is no forgiveness of debt; and third, even if there was, you can exclude it based on the new Tax Act. So, botXXXXX XXXXXne, you really have no risk to not reporting it.
Customer: replied 6 years ago.
Need some clarification, understand if it costs more.
But what is the purpose of a 1099-A other then to clear the debt from the bank's books?
As you mentioned, there is no forgiveness of debt, and the bank has no recourse in AZ-I have no assets outside of AZ. All I have is my IRA, social security, and pension.
Will the bank issue a 1099-C, or is the matter, for all intent of purposes over and life can go on?
There has been a lot of discussion as to the need for the 1099-A. There really is none other than, as you say, to provide the information from the bank. From your point of view, the matter is over and you can move on.
Customer: replied 6 years ago.
So, no 1099-C?
It's doubtful based on their assessment of the fair market value being in excess of the amount owed that they will issue the 1099-C because based on those numbers there was no forgiveness...they received value in property in excess of what was owed.
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