Foreclosure may require more tax forms
If you went through a foreclosure or had home mortgage debt forgiven last year, you might have income to report on your federal tax return — and you might see forms that are new to you.
- Forms from the lender. You may receive Form 1099-A, Acquisition or Abandonment of Secured Property, when your lender forecloses on your home or you give the lender a deed-in-lieu of foreclosure. Form 1099-A shows your outstanding debt and the fair market value of the property when the lender took it back.
You use Form 1099-A to determine the amount of gain or loss from relinquishing your home.
Did your lender forgive all or part of your mortgage? In that case, you’ll also get Form 1099-C, Cancellation of Debt, which reports the amount you no longer have to repay.
Note: When foreclosure occurs in the same year as debt is forgiven, lenders are only required to send Form 1099-C.
- Forms filed with your federal income tax return. While cancelled debt is generally taxable, debt forgiven on your principal residence can be excluded from income on your federal return. Form 982 tells the IRS you qualify for the exclusion.
In addition to income from cancellation of debt, a foreclosure is considered a sale of your home and can result in a capital gain or loss.
As you know, you can generally exclude gain from the sale of your principal residence (up to $500,000 when you’re married filing jointly). However, to report the foreclosure you may need to file a form that’s new for 2011: “Form 8949, Sales and Other Dispositions of Capital Assets.”
Foreclosures of property other than your home and cancellation of income from debts such as credit cards require additional reporting. Please give us a call here at Dye & Whitcomb, LLC, Fort Collins Colorado CPA’s We’ll help you work through the tax issues. 970.207.9724