What Is IRS Form 1099-A (Acquisition or Abandonment of Secured Property)?
Form 1099-A, Acquisition or Abandonment of Secured Property, is a crucial tax document issued to borrowers if their property securing a debt was foreclosed, repossessed, or abandoned. The lender files the form, but the borrower uses information on it to calculate capital gains or losses and taxable income from the cancellation of debt.
Key Takeaways
- Form 1099-A is filed after the foreclosure, repossession, or abandonment of property used to secure a loan.
- It's the lender's responsibility to file Form 1099-A, not that of the borrower. Borrowers will use information on the form to complete their tax returns.
- While a foreclosure, repossession, or abandonment of secured property is not a traditional sale, it can still result in gain or loss for tax purposes. Any debt canceled by the lender during a foreclosure, repossession, or abandonment can also be considered taxable income.
- Taxpayers should receive Form 1099-A by January 31 of the year following the year in which their secured property was foreclosed, repossessed, or abandoned.
If you don’t pay your mortgage, the lender can foreclose on the loan and take your home. That’s an incredibly difficult situation on its own. But it can also trigger many unforeseen consequences – such as a larger tax bill.
If you’re in that position – or a similar one where property you used to secure a loan is foreclosed, repossessed, or abandoned – you might receive an IRS Form 1099-A from the lender. The IRS will receive a copy of the form, too.
It’s an important tax document, since you’ll need the information on the Form 1099-A to calculate your taxes. That’s why understanding the details of Form 1099-A is critical for making sure your tax return is complete and accurate.
What’s the purpose of Form 1099-A?
Form 1099-A is an informational return that the IRS requires lenders to file when they acquire an interest in property (e.g., through foreclosure or repossession) that was used as security for a debt or have reason to know that the property has been abandoned.
The form notifies both the IRS and the borrower of the property's status and provides details about the property that are needed to file the borrower’s federal income tax return.
How to file Form 1099-A?
Fortunately, you aren’t required to file Form 1099-A if your property is foreclosed, repossessed, or abandoned. You just need the form to complete your tax return.
Instead, the responsibility for filing Form 1099-A generally rests with the bank and other financial institution that issued the loan secured by the property (e.g., your mortgage). And the lender only has to file the form if it either:
- acquires an interest in the property to satisfy all or part of the loan such as when it forecloses or repossesses the property
- has reason to know that you abandoned the property
Also, Form 1099-A is only required if the property is either:
- real property such as land or your home
- intangible property such as stocks, patents, and other property that doesn’t physically exist
- tangible personal property such as physical property used in a trade or business or for investment
So, for example, you won’t get a Form 1099-A if your car or other physical property used only for personal reasons is repossessed.
What information is on Form 1099-A?
Form 1099-A contains several important pieces of information that you’ll need to report the foreclosure, repossession, or abandonment of property on your tax return.
On the left side of the form, you’ll find basic information about the lender (e.g., name, address, telephone number, and taxpayer identification number). Similar information about you (the borrower) will also be shown, including your loan account number.
The most important information for your tax return is in the boxes on the right side of Form 1099-A. That information includes:
Box 1 - Date of Acquisition or Knowledge of Abandonment. This is the date the lender either acquired the secured property, or knew (or had reason to know) the property was abandoned.
Box 2 - Balance of Principal Outstanding. Lists the unpaid loan amount as of the date in Box 1. It only includes unpaid principal on the original loan, not accrued interest or foreclosure costs.
Box 4 - Fair Market Value of Property. Shows the property's fair market value as of the date in Box 1. Unless there’s evidence to the contrary, the lender must report the amount paid for the property at a foreclosure or similar sale as the fair market value. If the property is abandoned or voluntarily transferred to the lender instead of going through a foreclosure, the property’s appraised value is used if you were personally liable for repayment of the loan.
Box 5 - Was Borrower Personally Liable for Repayment of the Debt. This box is checked if you were personally liable for repayment of the debt when the loan was first taken out or, if the loan was modified, when it was last changed.
Box 6 - Description of Property. For real estate, the property’s address is generally provided. However, if the address doesn’t clearly identify the property, the lender can list the property’s section, lot, and block numbers. For personal property, the description might include the property’s type, make, and model (e.g., “car - 2018 Ford Escape”) or a general description for more than one item (e.g., “office equipment”).
How to use Form 1099-A to file your taxes?
Following the foreclosure, repossession, or abandonment of secured property, you might have to calculate either the:
- gain or loss from the transaction
- taxable income from canceled debt
In either case, you’ll need the information on Form 1099-A (or possibly Form 1099-C) to determine any tax you owe.
Using Form 1099-A to calculate gain or loss
If your secured property is foreclosed, repossessed, or abandoned, you might have to calculate gain or loss on the “sale” of the property. If so, whether it’s treated as capital gain or loss (which is typically calculated on Schedule D) or ordinary gain or loss (which is calculated on Form 4797) generally depends on the property itself (i.e., whether or not it’s a capital asset). However, there is a special rule for certain losses from abandonment.
TurboTax Tip:
If your home is foreclosed, there’s a good chance you won’t owe capital gains tax. That’s because up to $250,000 of gain ($500,000 for joint filers) is exempt from the capital gains tax if you owned the home and used it as your primary residence for at least two of the five years before the foreclosure, and you didn’t claim the home-sale exclusion during the last two years.
Basically, you have a gain on the sale of property if the sales price is more than your adjusted basis. On the other hand, you have a loss if the sales price is less than your adjusted basis.
When it comes to secured property that’s foreclosed, repossessed, or abandoned, the “sales price” is either the outstanding loan balance (Box 2 of Form 1099-A) or the property’s fair market value (Box 4 of Form 1099-A). Which one depends on whether you’re personally liable for repayment of the debt (Box 5 of Form 1099-A), and the type of transaction involved.
Sales Price for Foreclosure or Repossession. If your secured property is foreclosed or repossessed, it’s treated as if you sold the property. If you're liable for the remaining debt (Box 5 is checked), use the smaller of the outstanding loan balance (Box 2 of Form 1099-A) or the property’s fair market value (Box 4 of Form 1099-A) as the sales price for figuring any gain or loss. However, you must also add any amount you receive from a foreclosure sale.
If you're not liable for the remaining debt (Box 5 not checked), use the outstanding loan balance as the sales price.
Sales Price for Abandonment. If you abandon secured property and are personally liable for the debt (Box 5 is checked), there’s generally no “sale,” and therefore no gain or loss, until the lender forecloses on the property. At that point, the sales price for calculating gain or loss is based on the rules described above.
If you’re not personally liable for the debt (Box 5 not checked), the abandonment is treated as a sale for tax purposes right away. In that case, use the outstanding loan balance (Box 2 of Form 1099-A) as the sales price for determining gain or loss.
Ordinary Loss from Abandonment. A loss from the sale of a capital asset is usually treated as a capital loss. But that rule doesn’t necessarily apply if there is no sale, such as when secured property is abandoned and the borrower isn’t personally liable (Box 5 not checked).
So, according to the IRS, a loss from the abandonment of business or investment property that’s not treated as a sale of the property is generally deductible as an ordinary loss – even if the property is a capital asset. You can’t deduct a loss from abandonment of your home or other property held for personal use, though.
Since ordinary income is taxed at a higher rate than capital gains, and there are several restrictions on the use of capital losses, it’s usually better to have an ordinary loss that you can deduct from ordinary income than a capital loss.
Using Form 1099-A to calculate cancellation of debt income
If secured property is foreclosed, repossessed, or abandoned, the lender might also cancel some of your loan in the process. If that’s the case, you might have to report the canceled debt as ordinary taxable income. This is in addition to any capital gains tax you may owe.
However, canceled debt is only taxable if you’re personally liable for repaying the debt (Box 5 is checked). If you’re not personally liable (Box 5 not checked), you won’t have to report any canceled debt as taxable income.
If your property is foreclosed or repossessed, only the amount of canceled debt that’s greater than the property’s fair market value (Box 4 of Form 1099-A) is taxable. For abandoned property, all the canceled debt is taxable.
There are exceptions to the cancellation of debt rules. The most relevant exception is for up to $750,000 of qualified principal residence indebtedness (up to $375,000 for married people filing a separate tax return). Basically, qualified principal residence indebtedness is any mortgage secured by your main home that’s taken out to buy, build, or substantially improve that home. So, for example, if your bank forecloses on your home and cancels up to $750,000 of your mortgage, you won’t have to pay tax on the canceled debt. (This exclusion is currently set to expire in 2026.)
It’s also important to note that you’ll also get a Form 1099-C if a lender cancels at least $600 of your debt. The lender also has the option of just filing Form 1099-C and including the information about any foreclosure, repossession, or abandonment in the same calendar year on that form instead of on Form 1099-A.
When will you receive Form 1099-A?
You should receive Form 1099-A by January 31 of the year after your property was foreclosed, repossessed, or abandoned. If January 31 falls on a weekend, the deadline will be the next business day.
What if you receive an incorrect Form 1099-A?
If you receive an incorrect Form 1099-A, contact the lender who sent you the form right away and request a new form.
Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert can work with you in real time and maximize your deductions, finding every dollar you deserve, guaranteed.
You can also file taxes on your own with TurboTax Deluxe. We’ll search over 350 deductions and credits so you don’t miss a thing.
