Discussion:1099A Forclosure,personal residence.principal bal.$222391.99. FMV$205K. box 5 yes checked,liable for repayment of debt. I don't know where to report and if has to be included in income,please advise me!!

To Judy Stroh:

This is actually a difficult question.

You only received a 1099-A, and presumably not a corresponding 1099-C for Forgiveness of Debt Income (FODI).

As you are liable for the repayment of debt, while you are in default of the loan you are personally liable for repaying the loan. Thus, the loan MAY not have been written off the books of the bank yet. It is only when the loan has been written off the books of the bank that you actually have forgiveness of debt income (FODI). The bank isn't likely to notify you of the exact date they write off the loan, if ever. They can keep it on their books for seven years, and some keep these open debts longer. Others write it off the day the house is foreclosed. The bank often does not issue a form on the date the debt is written off their books but instead issues the form at the foreclosure instead. Why they f*** up this way, I don't know.

If you opt to tax the FODI now, you could be in trouble for NOT reporting the FODI in the year the bank ACTUALLY writes off the debt. This is a small risk.

If you opt to tax the FODI later, only after the debt has been written off the books, you risk the IRS getting rather irate that you didn't tax the FODI in the year you got your 1099A. This is a large risk.

Neither position is "more likely than not" as required under current IRS regulations. Generally, I advise risk-averse clients to tax the FODI now, and risk-savvy clients to tax the FODI later.

In either event, you still have a reportable sale of a property using the 1099-A. You want to see a tax preparer that specializes in foreclosures so that they can help you determine what to do with the FODI aspect, know how to compute the cost of sale (which doesn't appear on the 1099-A but indeed is there and quite large), and the new rules which allow additional tax relief from foreclosures.

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