What Does a 1099-A Mean After a Foreclosure?

If your mortgage loan becomes delinquent and you do not work with your lender to bring the account current, the lender may initiate foreclosure proceedings. In a foreclosure, the lender sells your home to recover some or all of the amount due under your mortgage loan. After foreclosure, you may receive a copy of form 1099-A, which is an informational reporting form mandated by the Internal Revenue Service.


Form 1099-A informs the IRS that a lender has repossessed collateral that secures a loan, or that you have abandoned collateral. In the case of foreclosure, this is your home. It identifies the lender and the borrower, and lists the outstanding balance of the loan and the fair market value of the property. It provides the IRS with the account number of the loan the collateral secures, as well as a physical description of the property that was repossessed or abandoned. The lender also indicates on form 1099-A whether you are liable for repayment of the debt.


By filing Form 1099-A, the lender alerts the IRS of a potentially taxable event. If the lender sells the property for more than the balance of your loan, you typically will receive the difference, which may represent capital gains on which you may have to pay taxes. If the sale is not sufficient to cover the loan and the lender cancels the remainder of the debt, you may have to pay taxes on the difference.


In some cases, the mortgage lender may choose not to forgive a deficiency that occurs after a foreclosure sale. In these cases, the lender typically will pursue collection of the deficiency, which may involve a lawsuit and judgment that result sin wage and bank account garnishment. However, you cannot use any loss reported on Form 1099-A that represents an unforgiven deficiency to reduce your tax liability.


If the mortgage lender forgives a deficiency after a foreclosure, you also will receive a 1099-C form. This reports the forgiven amount of mortgage debt to the IRS. You will need to report cancelled debt shown on form 1099-C on your tax return for the year in which the foreclosure occurred. If the forgiven debt is more than $600, the IRS considers the amount as earned income and you will be responsible for paying income taxes on this amount.