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All About Form 1099-A and Form 1099-C

Individuals or business entities who borrow money from a lender whether it be a lending institution for the purchase of a property may be required by the lending entity to secure the loan by the property being purchased. Should an individual then go ahead to transfer an interest in the secured property to the lending entity as the case would be in a foreclosure, or should an individual abandon the property, he or she may be required to treat the transfer or the abandonment as an actual sale of the property in question. Should the lending entity acquire an interest in the secured property or have a reason to know that you abandoned the property, the lending entity is required to send you a Form 1099-A for the acquisition or the abandonment of a secured property.

When an individual borrows money, he or she is not required to include the proceeds of the loan in gross income. This is because the borrower has an inherent obligation to repay the lender at a later date. Should that obligation be cancelled, the borrower is required to include this cancelled debt in gross income. When a commercial lender cancels a debt, the lending body will disburse a Form1099-C with regard to the cancellation of debt. This is the official method of reporting the debt cancellation.

The form 1099-A reports the principal amount owed to the lender as well as the fair market value of the property secured. This is then used by the debtor in determining whether there is a gain or loss in the property disposition. The form 1099-C reports the cancelled debt by the lender. The Form 1099-C may be used singly, if the interest of the lender in the secured debt or the abandonment of the property by the debtor as well as the cancellation of the debt all happen within the same calendar year. Should the borrower receive Form 1099-C or Form 1099-A with incorrect information, one should contact the lender in order for him to make the necessary corrections. Failure to do this could lead to penalties being imposed on your for providing the incorrect information or you could end up being short changed in the long run.

There are some circumstances that may call for the cancellation of debt income wholly or partially.  One such case is whereby you have a debt income cancellation on ones principal residence. Here one may be allowed to exclude the whole amount or part of the amount that is cancelled from your income. This is provided for expressly in the Mortgage Forgiveness Debt Relief Act of 2007.

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Erich J. Ruth

Erich J. Ruth provides technical support for National Software which is the parent company for 1099FIRE. 1099FIRE develops and markets a comprehensive range of products that enables any size of business or institution to effectively manage and comply with year-end filing requirements. 1099FIRE is an employee-owned company located in Phoenix, Arizona.

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