A homeowner who has a home in foreclosure can expect to receive a Form 1099-A from the lender. This form reports all the necessary information you’ll need to file your tax return in relation to your home foreclosure.

Capital Gains

In the eyes of the IRS, a foreclosure is the same as if you sold your property. That means you’ll either take on a capital gain or loss, although there isn’t a stated “selling price” in these circumstances. You’ll require information from your 1099-A at this point.

Important Information

The sale date and price of any foreclosed property is listed on a Form 1099-A. To accurately report the “sale” to the IRS, you’ll need to use the fair market value of the property or the balance of the loan that’s still outstanding. Box 2 will state the outstanding loan principal while Box 4 will report the fair market value of the property.

Box 1 details the date of the foreclosure, which is used as the “sale date” of the property, since the property was considered disposed of.

You should be aware whether or not your loan was considered recourse or non-recourse loan. If Box 5 is checked “yes”, then the loan was likely a recourse loan. The question related to Box 5 is: “Was borrower personally liable for repayment of the debt?”

Loss or Gain

You have to determine if the foreclosure results in a capital gain or loss. You’re not allowed by the IRS to claim capital losses on personal residences, and you need to report gains on a Schedule D. Foreclosures can result in a capital gain, though gains can typically be offset by the capital gain exclusion given to main homes. In many cases, foreclosures don’t acquire any capital gains tax, however you have to report the information on your 1099-A.

Reporting Foreclosures

If the foreclosed property was a personal residence, you’ll have to file a Schedule D with your taxes. The date of foreclosure in Box 1 is your date of sale, then you’ll need the information in either Box 2 or Box 4 as the selling price.

Calculating a Gain

A capital gain on a foreclosure is not simply the difference between Box 2 and Box 4. You’ll need to compare the sale price to your cost basis, the actual purchase price of the property, to calculate a gain. The purchase price is found on the closing statements you received when you bought the home. Any difference between the selling price and the purchase price is considered a gain, reported on Schedule D and line 13 on your Form 1040.