Debt Cancellation and Mortgage Foreclosure/Abandonment

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Presentation transcript:

Debt Cancellation and Mortgage Foreclosure/Abandonment Notes/Handouts 4/14/2018 Module NJ 2.4 Debt Cancellation and Mortgage Foreclosure/Abandonment Mortgage Forgiveness Debt Relief Act of 2007 1099-A 1099-C Final 11-15-2008 NJ Training TY 2008 NJ Training TY 2008 1

Debt Cancellation and Mortgage Foreclosure In scope ONLY if: Mortgage Mortgage is for TP main residence Must meet other requirements per Screening Sheet Pub 4731 OUT OF SCOPE if amount of debt cancelled includes ANY interest reported on Form 1099-C 4/14/2018 NJ Training TY 2008

Form 1099-C Cancellation of Debt Issued by Lender This form is intended primarily for reporting cancelled or forgiven debt relating to mortgage on main residence This cancellation of Debt is EXCLUDED from taxable income (Debt Relief Act of 2007) Most cancellation of debt is treated as taxable income and included on line 21, Other Income Mortgage debt cancellation is excluded from taxable income during 2007 thru 2012 per the Act noted above Must complete & file Form 982 (simple, check few boxes) See handout for boxes required to be completed or checked 4/14/2018 NJ Training TY 2008

Form 1099-A Acquisition or Abandonment of Secured Property 1099-A is issued by lender (Bank etc) when: Residence is foreclosed by lender Residence is given up (abandoned) by owner In either case, it is treated as a Sale and requires a Schedule D Sales price is lesser of Balance of Principal Outstanding or FMV of property as reported on Form 1099-A Cost basis is provided by taxpayer 4/14/2018 NJ Training TY 2008

Recourse vs Non-Recourse Debt On a 1099-A, the lender will indicate in box 5 whether the tp was personally liable: Yes-Recourse Debt If TP is personally responsible for debt not satisfied by surrender of secured property No-Non recourse Total debt is totally satisfied by surrender of secured property and borrower has no additional liability 4/14/2018 NJ Training TY 2008

Must Always File Schedule D Use Schedule D Worksheet 2, Selling Your Home Must ALWAYS file Schedule D in case of Foreclosure or Abandonment No loss on sale of personal residence is allowed Any gain of sale may be eligible for either $250,000 or $500,000 exclusion 4/14/2018 NJ Training TY 2008

1099-C vs 1099-A & 1099-C A lender has option of providing a 1099-A and a 1099-C or issuing only a 1099-C if both debt cancellation and foreclosure or abandonment occur in the same calendar year In the case of a 1099-C only being issued, it is used for both: 1. Debt Cancellation Form 982 2. Schedule D for Disposition of property In this case, the sales price is the lesser of Amount Of Debt Cancelled or FMV of property (Note Sales Price) NJ Training TY 2008

Who To Contact Cancellation of Debt is covered in Pub 4491-X Contact Site Coordinator if any questions 4/14/2018 NJ Training TY 2008