Additionally, you must report any cancelled debt that is taxable as ordinary income on your Form 1040. Generally, the foreclosing bank will send you a 1099-C shortly after the close of the tax year to report the precise amount you need to report and pay tax on.
What kind of tax form do I get after foreclosure?
You’ll receive one of two tax forms after foreclosure, or perhaps both: Form 1099-A is issued by the bank after real estate has been foreclosed upon. This form reports the date of the foreclosure, the fair market value of the property, and the outstanding loan balance immediately prior to the foreclosure.
When to report a foreclosure as a primary residence?
Report the foreclosure on Schedule D and Form 8949 if the foreclosed property was your primary residence. You might qualify to exclude up to $500,000 of gain from taxation subject to certain rules: The home was your primary residence. You owned the home for at least two of the last five years (730 days) up to the date of sale.
How is the sale price of a foreclosure reported to the IRS?
But there’s still a “sales price” for tax purposes. It will be either the fair market value of the property or the outstanding loan balance immediately prior to the foreclosure, depending on the type of loan you had. Both these figures will be reported to you and to the IRS by the lending institution on Form 1099-A.
How does a foreclosure affect your taxable income?
In addition, if the bank cancels your debt, meaning you no longer need to pay it back, then any amount in excess of the fair market value of the house is part of your ordinary taxable income. This ordinary income is separate from the gain or loss you calculate on the foreclosure of the home.
What happens to the sale price of a foreclosure?
In a normal sale transaction, the amount you realize is just another name for the sales price. However, in a foreclosure, the amount depends on whether you are responsible for the remaining mortgage debt or not.
