What is Form 1099A: The Ultimate Guide

This article discusses Form 1099-A, who files it, who receives it, what its constituents are, and what it could mean for your tax returns.

The Internal Revenue Service (IRS) is known worldwide for its stringent and non-flexible stance on tax and reporting requirements. However, the only people who can attest to this fact are US taxpayers.

Moreover, US citizenship-based taxation makes things worse for US expats. No matter where they live, they’ll always have something to report back to the IRS and may even have to pay US taxes.

There are over 800 IRS forms and schedules. Depending on your personal and corporate lifestyle, you must be familiar with many of them and file your taxes promptly to avoid hefty penalties. The worst part is that you’ll need to file most of these forms physically or through the mail.

When you think of all this nuisance, other countries where you can file your taxes online and don’t have to spend days figuring out your tax returns automatically seem far better.

Considering all that, have you ever considered going where you’re treated best? Where the government doesn’t ask for half your income in taxes, and you can legally reduce your tax rate to single digits – or even zero.

If that’s your goal, Nomad Capitalist can help you. Instead of spending days figuring out US taxes and what goes where you can simply reach out to us and let us help you go where you’re treated best through our holistic strategies. Set up a call with us today and get ready to gain the ultimate personal and financial freedom.

What is Form 1099-A?

Form 1099-A (Acquisition or Abandonment of Secured Property) is a US federal tax form. It is filed by lenders to report properties that were transferred due to foreclosure or abandonment.

IRS requires lenders to file in the year following the calendar year they acquired the property (foreclosure) or know that it has been abandoned.

Form 1099-A includes details about the property sale, including but not limited to the date of transfer and the property’s fair market value (FMV).

Form 1099-A is essentially an information form, but depending on the circumstances of the receiver, they may be liable to pay certain taxes.

Who Files Form 1099-A?

Form 1099-A is essentially filed by lenders, such as banks or similar financial institutions that lend out capital.

Lenders file Form 1099-A with the IRS when a property is sold or transferred because of abandonment or foreclosure. Moreover, they can also file if they know or believe the property is abandoned.

The lender reports the amount of the debt owed (principal only) in the form. They also report the property’s fair market value (FMV) as of the acquisition or abandonment date.

There are three copies of Form 1099 A:

• Copy A: Filed with the IRS
• Copy B: Sent to the Borrower
• Copy C: For the Lender Themselves

Note, however, that Form 1099 C is an entirely separate form from the Copy C of 1099 A.

The IRS determines if the borrower has any tax liability (due to the foreclosure/abandonment) based on the information provided on Form 1099-A.

Who Receives Form 1099-A?

You might receive Form 1099-A if your mortgage lender foreclosed on your property and cancelled your mortgage (some or all of it) or has reason to believe that you’ve stopped using the property, sold it, or abandoned it.

People with multiple mortgages on the foreclosed property can expect to receive multiple forms, i.e., a separate Form 1099 A from each lender.

If you took out a mortgage from a lender to purchase a property but, at some point, you stopped making payments (for any reason), the IRS would consider the still payable money (that you didn’t pay) as income. Such income may be taxable depending on your circumstances.

Note, however, that just receiving Form 1099 A doesn’t mean you owe taxes. However, the form must be reviewed carefully to confirm if there are any tax implications or not.

If a borrower cannot repay the loan and the lender cancels or forgives a portion of it, this may be reported on Form 1099-A as a cancelled debt.

Cancelled debt is generally considered taxable income by the IRS unless the borrower defaults or the debt is dischargeable due to insolvency.

The cancelled debt may not be taxable in both cases (insolvency and dischargeable debt).

Constituents of Form 1099 A

Form 1099-A includes the lender and the borrower’s details. It also features information about the secured property. The form’s left side contains the lender and borrower’s names, addresses, and tax identification numbers (TINs) and also mentions the borrower’s account number.

The right side has the following six boxes:

• Box 1 – Date of lender’s acquisition/knowledge of abandonment: Box 1 shows the date the lender acquired the secured property or the date the lender first learned that the property was abandoned.
• Box 2 – Outstanding Loan Balance: Box 2 shows the balance on your loan (principal only) when the lender acquired the property or first knew the property was abandoned.
• Box 3 – Reserved: Box 3 is usually left blank.
• Box 4 – Property’s Fair market value (FMV): Box 4 shows the fair market value of the secured property. If the amount in Box 2 exceeds that in Box 4 and your debt is cancelled, you may have cancelled debt income. In that case, you will also receive Form 1099-C (we will discuss this shortly).
• Box 5 – Recourse Loan or Not: Box 5 shows if the borrower was personally liable for the debt at the time of creation – or, if modified, at the time of the latest modification.
• Box 6 – Property Description: Box 6 shows the property address. The lender may also mention the property’s section, lot, and block.

In Box 5, if you have a non-recourse loan, i.e., you’re not personally liable for the unpaid debt, your sales price will be the total amount of the outstanding loan balance immediately before the foreclosure.

Box 2 and 4 help the debtor or the former property owner find their selling price, which will help calculate their capital gains or losses.

Form 1099 C – Cancellation of Debt

Earlier, we mentioned that you might receive Form 1099-A if your mortgage lender foreclosed on your property and cancelled your mortgage (some or all of it), among other circumstances. If the lender cancels some or all of your debt, you may be required to pay taxes on that amount because IRS typically considers cancelled debt taxable income.

In such a case, your lender will also issue a Form 1099-C – Cancellation of Debt to report the cancellation. The form contains the amount of the cancelled debt.

If the acquisition/abandonment of the secured property and the debt cancellation occur in the same calendar year, the lender may issue a Form 1099-C only.

How to File Form 1099-A (As a Lender)

A lender must file Form 1099-A with the IRS by the last day of February following the calendar year in which the property was acquired or abandoned per the lender’s knowledge.

As a lender, you must complete the form with relevant, detailed, and accurate information about the property’s acquisition/abandonment. You must include the borrower’s information, the property’s FMV, and other relevant details discussed in this article.

You can submit the form to the IRS either electronically or by mail. If you have to file 250 or more 1099-A forms, you must file them electronically. Otherwise, you can file them by mail.

As we discussed earlier, you may also need to file Form 1099 C – Cancellation of Debt regarding the acquisition or abandonment of secured property.

What to Do If You Receive a Form 1099 A?

If you abandoned or lost a mortgaged property due to foreclosure, your lender will issue you form 1099 A. You will receive a copy of this form in your mail, which you must keep for record-keeping purposes.

You can use the information on Form 1099-A to report the foreclosure on your tax return.

If you had more than one mortgage for a single property, you would receive multiple 1099-A forms (one from each lender) by January 31st each year.

You must report your foreclosure sales price and the subsequent capital gain or loss on Schedule D (for personal property) of Form 1040.

In the case of a non-recourse loan, you won’t use FMV to calculate capital gains or losses. Instead, you’ll use the outstanding mortgage balance at the time of foreclosure.

US Tax Residency – A Blessing or A Chore?

How many residents of other countries have you met who are frustrated by their tax agencies to the extent US taxpayers are from the IRS and its tedious system of tax calculation and collection?

Thanks to citizenship-based taxation, only moving away personally doesn’t really do much to reduce your tax bill. Moreover, you can’t file most US taxes online, making it much more complicated for expats.

We haven’t even started on the abundance of IRS tax forms and the ever-rising tax rates, making it even harder to keep track of the US tax system and your yearly tax liabilities.

Do you have the same problem? If you’re a seven or eight-figure investor or entrepreneur, you may even be affected by the additional taxes that only certain wealthy people have to pay in the US.

What if we told you there was a way to escape this mess? “But I have a home, a business, and many other assets to think of – who will cater all that?” If that’s how you think, you’re absolutely right. As we mentioned earlier, you can’t really reduce your taxes drastically by simply moving away. You need a holistic strategy covering everything from your personal life, corporate affairs, and investment portfolio. That’s where we come in.

Nomad Capitalist has a one-of-a-kind multi-layered approach that helps you go where you’re treated best.

In short, we help you achieve the ultimate personal and financial freedom. You don’t need to put up with the mess any longer, set up a call with us today.

What is Form 1099A: The Ultimate Guide for 2023 FAQ