This post was updated in April 2018
When a house is foreclosed upon by the bank, the owners typically receive Form 1099-A from their mortgage lender showing several pieces of important information. The owners will need the information on Form 1099-A to report the foreclosure on their tax return.
Taxpayers are required by law to report the foreclosure just like it were a sale of the property. To correctly report this, you’ll need to know the sale date and sale price of the property. Your lender(s) use Form 1099-A to provide you with the date of sale and the “selling price” of the property, but it’s only half the information you’ll need to report the foreclosed property on your 2017 tax return. You’ll also need to document the purchase date and purchase price; this information can be found in your escrow statements from when you first bought the house.
Figuring out the “selling price” of the house can be a little tricky because the number depends on the type of loan you had. You’ll report either the fair market value of the property or the outstanding loan balance as the “selling price.” Note: both of these figures are reported on Form 1099-A. The outstanding loan balance is in Box 2; the property’s fair market value is found in Box 4.
The date of the foreclosure is indicated in Box 1, which should be used as the “sale date” as well. You also need to know whether your loan was classified as recourse or non-recourse. If the bank has already checked “yes” in Box 5 (which asks “Was borrower personally liable for repayment of the debt?”) then it was most likely a recourse loan. Be aware that you may receive multiple 1099-A forms (one from each lender) for a single property. Or, if the lender both foreclosed on your property and canceled your mortgage debt, you will receive Form 1099-C instead of Form 1099-A.
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