Help with Form 1099-A

[Vigo]

What is the name of your state? Indiana

My question is regarding 2018 taxes which I have not yet filed.

2018 Tax Year Form 1099-A states that balance of principal is $126K and fair market value is $74K. Mortgage lender bought the house. The house was sold 3.5 months later by lender for $116K.

What can I do or should I do while in the process of filing 2018 taxes. I did my 2019 taxes by the way, the 2018 have been throwing me for a loop. The lender recooped way more money then their "fair market value". Zillow shows the property valued at $192K.

Thanks.

 

[PayrollHRGuy]

How much did you owe?

Zillow means almost nothing.

 

[LdiJ]

What is the name of your state? Indiana

My question is regarding 2018 taxes which I have not yet filed.

2018 Tax Year Form 1099-A states that balance of principal is $126K and fair market value is $74K. Mortgage lender bought the house. The house was sold 3.5 months later by lender for $116K.

What can I do or should I do while in the process of filing 2018 taxes. I did my 2019 taxes by the way, the 2018 have been throwing me for a loop. The lender recooped way more money then their "fair market value". Zillow shows the property valued at $192K.

Thanks.

You do nothing with a 1099-A. You can go ahead and file your 2018 taxes without mentioning the home. If you receive a 1099-C showing that they actually ended up cancelling any debt, you will deal with it then. Odds are that you will get a 1099-C since appears that the Mortgage company sold it for less than what you owed on it (the FMV on the 1099-A is kind of irrelevant), but you cannot deal with it tax wise until you have the 1099-C showing the actual amount.

If the house was your primary residence, you are able to exclude the 1099-C amount from your income. The insolvency exclusion may be applicable to you if the primary residence exclusion is not. Those are things you can explore once you receive the 1099-C. It might be a year or two before you receive it.

 

[FlyingRon]

Eh? What the mortgage company sold it for is probably immaterial. The question is how it went back to the mortgagee. If matters whether this was a foreclosure or a deed-in-lieu or agreed-to short sale. However, if the 1099 C comes, then you can see if something like the insolvency exemption avoids tax obligation. Until that happens, sit tight.

Zillow DOES NOT determine FMV. It doesn't have a clue about the actual value of the house. It just uses rough metrics to map against area sales without any actual standards of appraisal.

 

[Vigo]

This is for tax year 2018, I have yet to receive a Form 1099-C.
I know that Zillow doesn't mean a thing other then possibly, if that, trending info based upon comps.

With that said, the house was subsequently sold by the mortgage co for $40K+ more then what the mortgage co bought it back for. So why should I pay the difference in taxes between the original $126K owed, $74 fair market and $116K selling price 3.5 month later?

 

[Zigner]

This is for tax year 2018, I have yet to receive a Form 1099-C.
I know that Zillow doesn't mean a thing other then possibly, if that, trending info based upon comps.

With that said, the house was subsequently sold by the mortgage co for $40K+ more then what the mortgage co bought it back for. So why should I pay the difference in taxes between the original $126K owed, $74 fair market and $116K selling price 3.5 month later?

The reason for the tax is that they "forgave" the $10k that you still owed (it's a form of income for tax purposes).

 

[Vigo]

@Zigner they didn't forgive the $10K I still owed. They "forgave $50K" but should've been $10K. Thats the problem I'm having. It adds approx $7K in taxes due on my part.

 

[Zigner]

It would be nice if you give us the pertinent information in the first place, although I suspect that you don't know the pertinent information in the first place. In either case, as was mentioned above, it's likely that you won't owe anything if you take advantage of the various methods to reduce or eliminate that tax.

 

[Vigo]

@Zigner would be happy to furnish anything and all info needed. If there is a "sticky", that you could refer me to, and or, ask me the info needed, I would be happy to furnish the info needed for forum members to give me an educated and informed reply. So ask away or point me in some sort of sticky that I can copy and past as a reply with all info needed.

 

[Vigo]

Eh? What the mortgage company sold it for is probably immaterial. The question is how it went back to the mortgagee. If matters whether this was a foreclosure or a deed-in-lieu or agreed-to short sale. However, if the 1099 C comes, then you can see if something like the insolvency exemption avoids tax obligation. Until that happens, sit tight.

Zillow DOES NOT determine FMV. It doesn't have a clue about the actual value of the house. It just uses rough metrics to map against area sales without any actual standards of appraisal.

 

[Vigo]

This was a foreclosure

 

[Zigner]

Are you saying the lender bought your house at the foreclosure auction for $74k? If yes, then that means they are, in fact, forgiving $52k. Your numbers aren't making sense at all.

 

[Vigo]

Are you saying the lender bought your house at the foreclosure auction for $74k? If yes, then that means they are, in fact, forgiving $52k. Your numbers aren't making sense at all.

Yes, that is what I'm saying. But they were able to turn it around and sold it for $40K+ 2 months later.

 

[FlyingRon]

Yes, that is what I'm saying. But they were able to turn it around and sold it for $40K+ 2 months later.

Again, what they sold it for has no bearing. What the stated FMV has no real bearing. What matters as to whether this is taxable to you is the difference between what they paid for the property at foreclosure and what the amount owed is. The winning foreclosure bid IS the FMV, anyhow.
They have recourse against you for the difference between the sales price and what you owed. That is what the potentially taxable.

There are a couple of ways, even if they file the 1099-C that you can avoid being liable for tax on the forgiveness, but there's no point delving into all the possibilities until you actually get the forgiveness.

 

[Taxing Matters]

Yes, that is what I'm saying. But they were able to turn it around and sold it for $40K+ 2 months later.

I disagree wih LdiJ that you do "nothing" with the Form 1099-A. The foreclosure acts as a sale of the home, on which you realized either a gain or (more likely) a loss. So you report the gain or loss on the sale of the home as if you'd sold it yourself, using the figures from the Form 1099-A. I assume the lender only gave you credit on the loan for the $74k market value it put on the Form 1099-A, which means that is the amount realized in the sale. Your gain or loss is determined by subtracting your adjusted basis from that amount. If you have a loss and this was your personal residence that loss is not deductible. But at least you'd have no tax due on the home.

If the remaining debt from the loan after the foreclosure was canceled/forgiven then the amount that is forgiven/discharged is taxable income to you unless an exception applies. LdiJ mentioned the two most common exceptions: the one for discharge of debt on a personal residence and the insolvency exception. The lender is supposed to send you a Form 1099-C when that happens. If you didn't get a Form 1099-C but know for certain that the lender discharged the remaining debt, you still need to report that discharge. Otherwise, you wait to see if you get the Form 1099-C before dealing with that part of it.

See IRS publication 4681 for all the details of reporting a foreclosure.