If I had a foreclosure on a rental property, how do I report this?
Report a foreclosure on your return as a sale. The bank should give you a Form 1099-A reporting the foreclosure. If you haven’t received a Form 1099-A from your lender, contact your lender to request it.
Report the sale of rental property on Form 4797. The sales date is the date the foreclosure became final (reported on Form 1099-A, box 1). The sales price will depend on whether were personally liable on the loan.
If Form 1099-A, box 5 is checked Yes, then you’re personally liable for the loan. The sales price will be the lesser of:
The full outstanding debt before the foreclosure (in box 2)
The fair market value of the property (in box 4)
If box 5 is checked No, you’re not personally liable on the loan.
The sales price will be the amount of the entire outstanding debt in box 2. Figure your gain or loss by subtracting your adjusted basis in the property from the sales price. If you depreciated the property and sold it at a gain, you might have depreciation recapture. You might also be subject to loss limitations, depending on the circumstances.
The 1099-A only reports the sale portion of the transaction. You’ll probably receive a Form 1099-C, which reports your lender’s discharge of your debt. You’ll receive the Form 1099-C in the year your lender cancels your debt. That's not necessarily the same year you receive the Form 1099-A. There are separate rules for reporting cancellation of debt and potential income associated with it.
Thank you for your response. We value your feedback and are sorry we weren´t able to answer your question. If you need further assistance, please contact a tax office near you. Our Tax Professionals can help you get the answers you need.
This advice is for general information purposes only and may not apply to you. Every tax situation is different. This is not intended to be legal advice. Taxpayers should consult an H&R Block Tax Professional regarding their individual tax situation.