Ok I have been asked many many times on how to show a 1099-A and 1099-C. This is the steps on what to do…….
The 1099-A just says you abandoned the property and you need to report the “sale of home” on schedule D. Depending on whether it said you were personally liable or not for the remaining balance will dictate what number you use as the “sales” price. “If Liable is checked” use the “debt canceled” if “Not Liable is checked” then you use the “FMV”.
If the debt that was cancelled is more than what the house was worth, then you may have income from debt cancellation (don’t worry because if you lived in the home for more than two years you qualify for the exclusion). The date of sale will be the date that appears on the 1099-A form.
For example, if the house was worth $100,000 and the debt cancellation was $210,000 and you did not live in the home for two years, then you may have income from debt cancellation of $110,000. If you were insolvent (your total debts exceeds your total assets) on the date of the debt cancellation, then you do not need to recognize the $110,000 as income use form 982. On Schedule D, you would recognize the $210,000 as the sales proceeds on the house because that is what the bank took the house for, and you would need to enter the purchase price minus any deprecation if it was a rental as your cost basis in the property. You cannot recognize a loss on the sale of property unless the property was investment or rental property.
The 1099-C is usually the smaller amount and the way you report this is by using the debt canceled as income on form 1040 line 21. This is due to a second on the home by pulling cash or a down payment and is from another bank or could be from the same bank. The way to see if you are insolvent for this amount you must put the amount of debt canceled on form 982 and the FMV. Example, the liability is 300,000 and the FMV is 200,000 than the amount canceled is 100,000. You must total all your assets and debt on that form use a scratch pad if needed. If your assets are more than your debt then you will not qualify but if your debt is more than your asset then you will not report that amount on line 21 of the 1040 and file 982 to the IRS for insolvent. Hope this helps! As always, If you have any tax questions or comments, Ill respond as quickly as possible.