Real Estate CPA discusses IRS Form 1099-A, Acquisition or Abandonment of Secured Property, for Rental Property | landlord taxation issues | Form 4797, Sales of Business Property

Real Estate CPAs expect to see plenty of 2013 Form 1099-A(s), Acquisition or Abandonment of Secured Property, for rental property. The Recession was tough on landlords. I’ll present an overview for reporting Form 1099-A for both Form 8825 and Schedule E landlords. Note the IRS Form 1099-A instructions deal with issuing Form 1099-A, not the landlord’s tax reporting rules. While S Corporation tax returns, Form 1120-S, Partnership tax returns, Form 1065, and Form 1040 (Schedule E) all have quirks, Form 1099-A requires preparing Form 4797 regardless of he parent return. So I’ll concentrate on that. But here’s the typical logistics.

• Landlords receive Form 1099-A when the rental property gets foreclosed or when they abandon the rental property.
• Form 1099-A essentially reports a “sale” of the rental property to the IRS and landlord. I know it doesn’t seem like a true sale.
• The calculation for rental property gain or loss occurs on Form 4797, Sales of Business Property.

“Often a landlord never receives a Form 1099-A for a rental property foreclosure. It’s more common to receive IRS Form 1099-C, Cancellation of Debt, which includes the sales information for Form 4797.”
- Gary Bode, real estate CPA

Form 1099-A, Acquisition or Abandonment of Secured Property, tax reporting components for landlords

Perform due diligence on Form 1099-A before you accept it. But here are the main issues I see. Landlords need to understand Box 1, the date of the “sale”, and Box 4, Fair Market Value of Property.

Generally the date isn’t a problem as it doesn’t much affect the gain or loss on calculated on Form 4797.

But Box 4 is important. It gives the FMV of the property, essentially the sales price. A higher FMV on Form 1099-A means more taxable gain, or conversely, less loss you can deduct. The IRS thinks the figure in Box 4 of Form 1099-A, Acquisition or Abandonment of Secured Property, is Gospel. But real estate FMV, especially rental property, is a guesstimate. So real estate CPAs ought to consider challenging the FMV in Box 4 if that works to the advantage of their landlord Clients.

I’ve challenged the FMV of rental property on Form 1099-A. Just build a case for the alternate FMV figure and present the documentation along with an explanation on your tax return.

Form 4797, Sales of Business Property

The best reason for landlords to keep great rental property documentation is Form 4797. You’d think that receiving a Form 1099-A for your rental property guarantees a taxable loss and a nice deduction. But that’s always the case. Here are some of the parameters for the gain/loss calculation on Form 4797, Sales of Business Property.

• Date of Purchase.
• Purchase Price.
• Expenses of purchase.
• Improvements put into the rental property.
• Basis of rental property add-ons, like appliances.
• Basis of intangible assets like re-financing fees.
• Past depreciation.
• Current depreciation.
• Unclaimed past rental losses.
• Sales price.
• Sales expense.

Biggest Form 1099-A myth

Form 1099-A, Acquisition or Abandonment of Secured Property, by itself, doesn’t trigger any cancelled debt. However a Form 1099-C, Cancellation of Debt, usually follows the Form 1099-A, albeit in a subsequent tax year. I suggest anticipating the Form 1099-C. Some landlords engage me only after the IRS sends a Notice CP2000 wanting to tax the entire amount of cancelled debt on a Form 1099-C the Client never received. Pull your IRS records or call the bank.

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