In the face of financial difficulties, businesses may vacate properties, leading to foreclosures or bankruptcies. You as the tax pro play a crucial role in comprehending Forms 1099-A and 1099-C for varied entities.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: When reporting the sale of a Form 1099-A, Acquisition or Abandonment of Secured Property, transaction for tax reporting, can we also factor in a capital improvement cost to lower capital gains?
A: Yes, use the adjusted basis of the property. Adjusted basis is cost plus improvements less any depreciation.
Q: Many sole proprietors use a personal credit card for their business. The card is usually not in the name of the business but rather the owner. Sometimes the only charges on that card are for business. When that card balance is forgiven, how do you handle it?
A: It’s still reported on the Schedule C because it is a disregarded entity, and that’s where the business COD income is reported.
Q: How do we report the gain or loss if the taxpayer received the Form 1099-A and Form 1099-C in different years?
A: The Form 1099-A is used to report the sale of the property for a gain or loss. The Form 1099-C is to report any COD income. These are two separate transactions and could be reported in different years.
Q: If the lender never issues Form 1099-A, when does the taxpayer report walking away from a timeshare owned?
A: They’ll report it when they are no longer listed as the owner of the property. Until ownership changes, no sale occurs.
To learn more about reporting property dispositions and debt cancellations for business entities, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.