How Do I File Taxes on a 1099-A Foreclosure?

It goes without saying that the foreclosure process is painful and drawn-out. Every year, tens of thousands of American families lose their homes to foreclosure. In the wake of the housing crisis, foreclosure rates have spiked to historical highs. In some places, local courts are struggling with a huge backlog of foreclosed homes and may take years to process each individual claim. This affects the occupants of foreclosed homes and the mortgage lenders that issued their loans in equal measure. What's more, it creates an atmosphere of uncertainty and mistrust that can prove difficult or impossible to shake.

In this sense, homeowners who are able to exit the foreclosure process and move on with their lives may be considered lucky. Of course, nothing can replace the memories that imbue a lost family home. At the same time, the crushing uncertainty of a delayed foreclosure process can affect the plans and aspirations of affected families.

If you're a "lucky" homeowner who recently endured a foreclosure, you may be wondering how to report the loss of your home on your taxes. After all, your post-foreclosure tax bills may be significantly larger than you anticipated. Going forward, you won't be able to use the Mortgage Interest Tax Deduction

to offset a substantial portion of your income. While you may be entitled to various rent-related credits, it's unlikely that these will be as robust or reliable as the Mortgage Interest Tax Deduction.

Unfortunately, your foreclosure may not entitle you to a sizable tax credit. On the other hand, it's also unlikely to contribute to your year-end tax burden. For tax purposes, the foreclosure process is usually little more than a wash. However, this process isn't automatic. In order to ensure that you're not taxed on any tax-free sales receipts, you'll need to file the appropriate forms with your tax return.

After your foreclosure, you'll need to record the proceeds from your foreclosure on IRS Form 1099-A. For tax purposes, this categorizes your foreclosure as a standard home sale. You'll actually enter the total value of the sale on the first line of your 1099-A and again on Schedule D of your tax return. Despite its non-intuitive nature, this dual-entry system is required by the IRS. Unfortunately, you can't deduct any loss that you incur on a foreclosure. To make matters worse, you'll need to report any income that your mortgage lender receives as a result of the foreclosure on your own tax return.

Source: thelawdictionary.org

Category: Taxes

Similar articles: