Reporting COD or Cancellation of Debt is a procedure involving two varied information documents and they are the IRS Form 1099-C or cancellation of Debt and the IRS Form 1099-A or Abandonment or Acquisition of Secured Property. IRS Form 1099-A is generally provided to both tax payers and tax authorities when lenders repossess, foreclose or have reasons to suspect the abandonment of property. Whether or not an individual receives any of these forms within time remaining, it is important for an individual to report COD or Cancellation or Debt that he or she might have owed on his or her personal income tax. The acts of foreclosure, abandonment or repossession are treated in the form of exchange or sale of the property with the rules of loss of gain subsequently being applied. The income arising from the cancellation of recourse debt tends to be taxable irrespective of the fact that whether the income is surrendered or returned.
Importance of Information Provided in Box 5 of the Form
IRS Form 1099-A is basically a kind of information form including the property’s fair market value, property description, the balance of debt outstanding and whether or not the debt is identified as non-recourse or recourse. In Box5, the Yes or the No check box, specifically indicates whether or not the borrower is liable personally for the debt repayment. Information provided in this box is considered very important. This is due to the fact that is there is a No in this box; the debt is identified as non-recourse.
This means that the borrower does not take the liability for the debt personally. However, in case of recourse debt, the purchaser does not take liability but in a scenario where the debt has been canceled, the borrower might gain which comes in the form of additional taxable income by way of the removal of the burden of tax repayment obligation. In scenarios where recourse loans lead to repossessions or foreclosures, Form 1099-A offers important information in regards to the additional taxes which are owed on debt-generated income.
Using the Services of Experienced Tax Preparers
It is always quite beneficial and even wise to use the services of an experienced and sincere tax preparer when it comes to transferring information from IRS Form 1099-A to the income tax returns properly. It is always expected by individuals to include IRS Form 1040 Schedule D with the tax returns. It is important for the taxpayers not to overlook Cancellation of Debt events when trying to file their income tax returns. It is also quite beneficial to visit the website of the Internal Revenue Service or the IRS in order to get more and complete information in this field.