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Course map 9/13/2018

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My Worksheets
9/13/2018
• 3 Worksheets critical to this course
• Print off 3 – 4 copies of each
• Where to find them

• DNA IRS Worksheet 4868

• Block Academy Foreclosures and
• Campus Connect Repossessions
• Knowledge Bank
• Topics
• Federal Tax Training
Block Worksheet
• Page 3
Statement of Repossession for
• Repossessions and Foreclosures
Seller
• Advanced Repossessions and Foreclosures
• 2018 ARF Supplemental Files
• Open the Zipped File
• Save three worksheets to your desktop Block Worksheet
• Print off hard copies Statement of Repossession
Sellers Principal Home
Access via Inkling Online Participant Guide also

Course Objectives
Table 1-1. Worksheet for Foreclosures and taking into account the payments Tara made
Keep for Your Records was $10,000. The FMV of the car when it was
Repossessions
repossessed was $9,000.
Part 1. Complete Part 1 only if you were personally liable for the debt (even if none of the debt was The amount Tara realized on the reposses-
canceled). Otherwise, go to Part 2. sion is $10,000. That is the outstanding amount
of debt immediately before the repossession,
1. Enter the amount of outstanding debt immediately before the transfer of even though the FMV of the car is less than
property reduced by any amount for which you remain personally liable $10,000. Tara figures her gain or loss on the re-
immediately after the transfer of property . . . . . . . . . . . . . . . . . . . . . . . . . . possession by comparing the $10,000 amount
2. Enter the fair market value of the transferred property . . . . . . . . . . . . . . . . . . realized with her $15,000 adjusted basis. Tara
3. Ordinary income from the cancellation of debt upon foreclosure or has a $5,000 nondeductible loss.
repossession.* Subtract line 2 from line 1. If less than zero, enter zero. Next,
go to Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Example 2. Lili paid $200,000 for her
home. She made a $15,000 downpayment and
Part 2. Gain or loss from foreclosure or repossession. borrowed the remaining $185,000 from a bank.
She is not personally liable for the loan, but
4. Enter the smaller of line 1 or line 2. If you did not complete Part 1 (because you
grants the bank a mortgage.
were not personally liable for the debt), enter the amount of outstanding debt
The bank foreclosed on the mortgage be-
immediately before the transfer of property . . . . . . . . . . . . . . . . . . . . . . . . .
cause Lili stopped making payments. When the
5. Enter any proceeds you received from the foreclosure sale . . . . . . . . . . . . . . bank foreclosed on the mortgage, the balance
6. Add line 4 and line 5 ........................................ due was $180,000, the FMV of the house was
7. Enter the adjusted basis of the transferred property . . . . . . . . . . . . . . . . . . . $170,000, and Lili's adjusted basis was
$175,000 due to a casualty loss she had deduc-
8. Gain or loss from foreclosure or repossession. Subtract line 7 ted.
from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The amount Lili realized on the foreclosure
is $180,000, the outstanding debt immediately
*
The income may not be taxable. See chapter 1 for more details.
before the foreclosure. She figures her gain or
loss by comparing the $180,000 amount real-
Example 1. Tara bought a new car for the foreclosure, the bank forgave $2,000 of the
ized with her $175,000 adjusted basis. Lili has a
$15,000. She made a $2,000 downpayment $10,000 debt in excess of the FMV ($180,000
$5,000 realized gain. See Publication 523 to fig-
and borrowed the remaining $13,000 from the minus $170,000). She remained personally lia-
ure and report any taxable amount.
dealer's credit company. Tara is personally lia- ble for the $8,000 balance.
ble for the loan (recourse debt) and the car is In this case, Lili has ordinary income from
Forms 1099-A and 1099-C. A lender who ac-
pledged as security for the loan. On August 1, the cancellation of debt in the amount of
quires an interest in your property in a foreclo-
2013, the credit company repossessed the car $2,000. The $2,000 income from the cancella-
sure or repossession should send you Form
because Tara had stopped making loan pay- tion of debt is figured by subtracting the
1099-A, Acquisition or Abandonment of Se-
ments. The balance due after taking into ac- $170,000 FMV of the house from the $172,000
cured Property, showing information you need
count the payments Tara made was $10,000. difference between her total outstanding debt
to figure your gain or loss. However, if the
The FMV of the car when it was repossessed immediately before the transfer of property and
the amount for which she remains personally li- lender also cancels part of your debt and must
was $9,000. On November 15, 2013, the credit
able immediately after the transfer ($180,000 file Form 1099-C, the lender can include the in-
company forgave the remaining $1,000 balance
minus $8,000). She is able to exclude the formation about the foreclosure or repossession
on the loan due to insufficient assets.
$2,000 of canceled debt from her income under on that form instead of on Form 1099-A. The
In this case, the amount Tara realizes is
the qualified principal residence indebtedness lender must file Form 1099-C and send you a
$9,000. This is the smaller of:
rules discussed earlier. copy if the amount of debt canceled is $600 or
The $10,000 outstanding debt immediately
more and the lender is a financial institution,
before the repossession reduced by the
Lili must also determine her gain or loss from credit union, federal government agency, or any
$1,000 for which she remains personally li-
the foreclosure. In this case, the amount that organization that has a significant trade or busi-
able immediately after the repossession
she realizes is $170,000. This is the smaller of: ness of lending money. For foreclosures or re-
($10,000 − $1,000 = $9,000), or
(a) the $180,000 outstanding debt immediately possessions occurring in 2013, these forms
The $9,000 FMV of the car.
before the transfer reduced by the $8,000 for should be sent to you by January 31, 2014.
Tara figures her gain or loss on the reposses- which she remains personally liable immedi-
sion by comparing the $9,000 amount realized ately after the transfer ($180,000 − $8,000 =
with her $15,000 adjusted basis. She has a $172,000) or (b) the $170,000 FMV of the
$6,000 nondeductible loss. After the cancella- house. Lili figures her gain or loss on the fore-
tion of the remaining balance on the loan in No- closure by comparing the $170,000 amount re-
vember, Tara also has ordinary income from alized with her $175,000 adjusted basis. She
cancellation of debt in the amount of $1,000 has a $5,000 nondeductible loss. 3.
(the remaining balance on the $10,000 loan af- Amount realized on a nonrecourse debt.
ter the $9,000 amount satisfied by the FMV of If you are not personally liable for repaying the
the repossessed car). Tara must report this
$1,000 on her return unless one of the excep-
debt secured by the transferred property, the
amount you realize includes the full amount of
Abandonments
tions or exclusions described in chapter 1 ap- the outstanding debt immediately before the
plies. transfer. This is true even if the FMV of the You abandon property when you voluntarily and
property is less than the outstanding debt im- permanently give up possession and use of the
Example 2. Lili paid $200,000 for her mediately before the transfer. property with the intention of ending your own-
home. She made a $15,000 downpayment and ership but without passing it on to anyone else.
borrowed the remaining $185,000 from a bank. Example 1. Tara bought a new car for Whether an abandonment has occurred is de-
Lili is personally liable for the mortgage loan $15,000. She made a $2,000 downpayment termined in light of all the facts and circumstan-
and the house secures the loan. In 2013, the and borrowed the remaining $13,000 from the ces. You must both show an intention to aban-
bank foreclosed on the mortgage because Lili dealer's credit company. Tara is not personally don the property and affirmatively act to
stopped making payments. When the bank liable for the loan (nonrecourse), but pledged abandon the property.
foreclosed the mortgage, the balance due was the new car as security for the loan.
$180,000, the FMV of the house was $170,000, On August 1, 2013, the credit company re- A voluntary conveyance of the property in lieu
and Lili's adjusted basis was $175,000 due to a possessed the car because Tara had stopped of foreclosure is not an abandonment and is
casualty loss she had deducted. At the time of making loan payments. The balance due after treated as the exchange of property to satisfy a

Page 12 Chapter 3 Abandonments

Form 1099A

My Graphic 9/13/2018
 Basic Formula
Amount Realized – Adjusted Basis = Gain or Loss for Borrower
Amount Realized is different for Recourse vs Non Recourse Loans
Non Recourse Loan Recourse Loan
1099A 1099A
Box 2 – Basis = Gain or Loss Smaller of Box 2 or 4 – Basis = Gain or Loss

Borrower has Borrower’s

no additional Deficiency
Box 2 responsibility Box 2 40
Amt Realized
Box 2 Balance Due Box 4
Balance Due
Amt Realized 100 FMV
100
Balance Due Amt Realized
60 60

Minus Minus Minus Minus

Basis Basis Basis Basis
80 80 80 80

Gain Loss Gain Loss

20 20 20 20
My 1099A
What is an installment contract or sale?
• Any sale that requires payments in the years following the original deal.
• The IRS allows lenders to report these sales in either of two ways.

Report the sale / loan Report the sale / loan payment by

all during first year. payment during the years outstanding.

Profit of the sale. All

reported in the year
of the sale.

Basis of the Sale all

reported in the year
of the sale.
Form 1099A

Poll 5 9/13/2018
Using the Worksheet

My David Exercise
9/13/2018
Help me fill this in
David Exercise 1C

Nothing
Here

Millicent 9/13/2018
Barnes
Elanzo Johnson BlockWorks Case. Fact Sheet / 1099A / Worksheet / BlockWorks

• Typical W2 Forms
• 1099G Unemployment
• 1099G State Tax Refund
• 1098 Mortgage Interest and Mortgage Insurance
• 2012: Home cost 350,000. Down pmt 20,000. Mortgage 330,000 / Recourse
• 2016: Lost job. Stopped paying mortgage April 2017.
• Adjusted basis on home because of casualty loss: 315,200

BW
 Summary of Session 1
Gain or Loss
Foreclosure Deficiency
Record sale in
Process Defined Court Judgement
Blockworks Home Sale

Recourse Debt
1099A Blockworks provides
Your other assets at
and IRS Worksheet Schedule D / 4797
risk

Recourse Debt Alternatives to

Non Recourse Debt Amount realized = Foreclosure
No other assets at risk Smaller of Debt or Negotiate / Short Sale
FMV etc

Non Recourse
Redemption Amount realized = THANK
Equity / Statutory Amount of Debt
Cancelled YOU
Homework Detail
9/13/2018
 Reporting borrower’s gain or
loss when their property is
repossessed or foreclosed

Personal Business
Form 8949

• D: Capital Gains and Losses • Form 4797

• 8949: Sales of Capital Assets • Property used in a trade or business
• Property used for personal purposes • Involuntary conversations
• Investments • Disposition of noncapital assets
• Involuntary conversions
• Non business bad debts
• Foreclosures of personal property
10/1/2018
This is a concise article on what is covered in chapter 1 of Advanced
Repossessions and Foreclosures course.

Leon Maynard

You must report the 1099-A information but you might not
take a tax hit

By William Perez
Updated April 20, 2018
A homeowner typically receives IRS Form 1099-A from his lender after his home has been
foreclosed upon. The information on the form is necessary to report the foreclosure on your tax
return...and yes, unfortunately, you must do so.
You might receive multiple Forms 1099-A for a single property if you had more than one
mortgage or lien against it and more than one lender was involved in the foreclosure. But don't
panic. Here's what you need to know.

Foreclosures and Capital Gains

The Internal Revenue Service treats a foreclosure just the same as if you had sold your
property. You'll have to calculate your capital gain or loss, but unlike with a normal sale, there's
no "selling price" in this scenario. This is where Form 1099-A comes into play.

The Information on Form 1099-A

You'll need the selling date and the selling price of the foreclosed property to properly report
its "sale" to the IRS, and you'll find this information on Form 1099-A. For the sales price, you'll
use either the fair market value of the property or the outstanding loan balance at the time of
the foreclosure.
The outstanding loan balance is found in box 2 and the property's fair market value is found in
box 4 of the 1099-A. The date of the foreclosure is indicated in box 1 and this will be used as the
date the property was disposed of—that is, the "sale date
Taxpayers must also know if the loan was a recourse loan or a non-recourse loan. The loan was
probably a recourse loan if the lender has checked "yes" in box 5 which asks "Was borrower
personally liable for repayment of the debt?"
Do You Have a Gain or a Loss?

Capital gains are reported on Schedule D for homes that were personal residences. The IRS
does not allow taxpayers to claim losses on personal residences. Any gain—and yes, a
foreclosure can actually result in a gain—can usually be offset by the capital gains exclusion for
a main home so it’s unlikely that a foreclosure will result in any capital gains tax coming due.
You must report the 1099-A information anyway, but you probably won't have to take a tax hit.

Reporting the Foreclosure

Use the date of the foreclosure in box 1 of the 1099-A as your date of sale, then enter the
selling price on Schedule D. This will be either the amount in box 2 or the amount in box 4.
Which box you'll use will depend on the lending laws of the state in which the property was
located so check with a local tax professional to make sure you select the correct one.

Calculating Your Gain

You can calculate your gain by comparing the “sales price” you used to your purchase price,
which is your cost basis in the property. This information can typically be found on the HUD-1
closing statement you received when you purchased the property. The difference between the
selling price and your cost basis is your gain. Enter this on Schedule D and on line 13 of your
Form 1040 tax return.

Investment Properties

Use Form 4797 if the foreclosed property was a rental or an investment. You'll probably need
the assistance of a tax professional in this case because there are additional factors to take into
consideration, such as recapture of depreciation deductions, passive activity loss carryovers,
and reporting any final rental income and expenses.

Form 1099-A vs. Form 1099-C

You might receive Form 1099-C instead of Form 1099-A if your lender both foreclosed on the
property and canceled any remaining mortgage balance you owed. In this case, the IRS takes
the position that you received income from the foreclosure—you received money from the
lender to purchase your home and you did not pay all that money back.
But although forgiven debt reported on Schedule 1099-C is usually taxable income, the
Mortgage Forgiveness Debt Relief Act generally excludes mortgages canceled through
foreclosure.
An Important Update

This tax provision allowing you to exclude mortgages canceled through foreclosure technically
expired on December 31, 2016, but the Bipartisan Budget Act breathed new life into it in
February 2018. It was reinstated retroactively to cover tax year 2017. Only time will tell if
Congress renews it again for 2018 and future years.
For now, this provision covers foreclosure agreements entered into in 2017. You should qualify
if the total of your debts exceeded the total value of your assets immediately before the time of
foreclosure. This means that you're "insolvent" and you must only report canceled debt on your
tax return to the extent that it exceeds your insolvency—the difference between your debts
and your assets.
For example, you might have debts totaling $300,000 and all your remaining assets are valued
at $200,000. That's a difference of $100,000. If your lender forgave or canceled a $120,000
balance on your mortgage loan, you only have to report $20,000 as income—the amount
exceeding your $100,000 insolvency.
NOTE: Tax laws change periodically so you should consult with a tax professional for the most
up-to-date advice. The information contained in this article is not intended as tax advice and
it is not a substitute for tax advice.
 Key Aspects of Foreclosure Law in Each State

https://www.nolo.com/legal-encyclopedia

State Most common Deficiency Redemption Reinstatement

foreclosure judgment allowed after available under
process allowed? sale? state law?
Connecticut Judicial (strict Yes Strict No
foreclosure or foreclosure: until
foreclosure by Law Day
sale)
Foreclosure by
sale: until court
confirms the sale
Delaware Judicial Yes Yes (up until No
court confirms
the sale)
District of Nonjudicial Yes No Allowed up to five
Columbia business days
before the sale,
once in two
consecutive years
Florida Judicial Yes Yes, but must do No
so before the
clerk files the
certificate of
sale, or the time
stated in the
foreclosure
judgment
Georgia Nonjudicial Yes, if a court No High-cost home
confirms the sale loans may be
reinstated until title
is transferred
Hawaii Judicial Yes No No
Idaho Nonjudicial Yes No Available within
115 days after
notice of default is
filed with county
recorder
Non-judicial foreclosures happen when a mortgage agreement has a "power of sale" clause
that gives the lender the right to foreclose on a property by itself. Without that clause, the
lender has to take the borrower to court in order to foreclose; hence the term judicial
foreclosure. Many states require judicial foreclosures.

A deficiency judgment is an unsecured money judgment against a borrower

whosemortgage foreclosure sale did not produce sufficient funds to pay the underlying
promissory note, or loan, in full.

In a strict foreclosure, the lender goes to court to ask for an order declaring you to be in default
on the mortgage. If the court agrees that you are in default, it will approve the foreclosure and
give title to your home directly to the lender. There is no foreclosure sale like with a judicial or
nonjudicial foreclosure.