I received a Form 1099-A from a deed in lieu from the house that I used to live in. I moved and rented the house out until I could sell it, but the value of the house declined too much to sell it. I paid $71,800 for the house in 1997 and box 2 of the form is $55,236.12, the fair market value listed is at $20,000, and box 5 is checked. What is the process on reporting this on my taxes, and how much liability will I have? I did not and will not receive a 1099-C Form.

ANSWER

The BIDaWIZ Team's Answer:

Since this is a recourse loan as Box 5 is checked, your sales price will be the lesser of the outstanding debt immediately before the foreclosure listed in box 2 of $55,236.12 or the fair market value of the foreclosed property listed in box 4 or $20,000. Thus, your sales price is $20,000. Then, you wold subtract your adjusted basis in the property from the sales price of $20,000. This is reported on Schedule D. If there's a gain, you might be able to exclude it if it's your main home via IRC Section 1212. If there's a loss, you can't deduct it.