There seems to be a ton of confusion as to what to do with the 1099A after you got rid of your mortgage. That you more or less did by losing your home at the same time in the form of a foreclosure or a short sale.Leaving out the 1099C which you many get in addition. So hopefully this will clear it up a little.To see how your tax adviser many help you in filing them correctly, do save your forms and bring them.. There are a ton of homes where the homes ended in foreclosure or a short sale.The previous owners of these homes will receive a 1099A and hopefully a 1099C following that.But please understand that this blog is only informational and for specific situations you need to consult your tax preparer.

A 1099A is nothing but a receipt from your lender saying that you have taken your home back.It is not a taxable event that will come later though its just that. Whenever you get a 1099.

1) If the foreclosed home was not an investment property or a rental but your principle residence.The difference form what you owed to what the bank sold your home will not involve a taxable event thanks to the Mortgage Forgiveness Debt Relief Act of 2007. But this act does expire as on December 31, 2012.
2) Now this is when you see your tax adviser because if you are insolvent at the time the debt is canceled then you will not have to worry about the tax.The show that you are insolvent, you are expected to submit an IRS form 982 and being insolvent refers to a situation where you basically have more debt than assets.
3) The debt is canceled due to bankruptcy, this should be your last resort if you need to use it.

Most homeowners will receive a 1099A usually once these homes have been sold as a foreclosure or they have been closed in a short sale. When you receive a 1099A remember this is just the receipt from the lender saying that they have accepted the property as partial satisfaction for the amount of the debt owed.But the 1099A is not documentary evidence of the cancellation of your debt and you do not need to file it with your tax return. The most likely reason for the cancellation of the debt is because you owed more on the home than what it was worth.So there still is a balance owning on the loan. The 1099A is just a neutral tax document.

The trouble begins with the 1099C this is going to tell you and the IRS the amount of the cancellation of debt. For some, the 1099C can cause problems. To find out if you will have a taxable event or not, you will have to work with your numbers. Depending on two things which is the dollar amount that is canceled by your bank and whether you have more liabilities than assets. Here, the real problems start. Is it that the 1099C is issued to you so that you could do your tax return without worrying about the phantom income that the IRS would love to tax you on. Consider that you owed $500,000.00 on a home that the bank sold for $250,000.00 so your phantom income amounts to $250,000.00. There have been many home owners that have been forced in Bankruptcy just for this one simple thing. Just contact your legal and tax professional for your specific situation keeping in mind that each situation is different.