Interview Notes Frank and Lonnette received Form 1099-A reporting the foreclosure on their principal residence in 2014. At the time of foreclosure, they owed a balance of $100,000 to the lender (Form 1099-A, box 2) and the FMV of the property was $50,000 (Form 1099-A, box 4). Frank and Lonnette had owned and lived in their home since 2001. They moved out of their home on September 2, 2014. Their residence was never used as a business or as rental property. Frank and Lonnette have not filed for bankruptcy. Form 1099-A, box 5, was checked showing the Snows were personally liable for the debt. The debt has not been canceled by the creditor. 1. Frank and Lonnette will report the foreclosure of their home using _____.

A. Form 982 only B. Schedule D only C. Form 8949 and Schedule D D. Form 982, Form 8949, and Schedule D

2. The sales price of Frank and Lonette's home on Form 8949 and Schedule D is ________.

A. $30,000 B. $50,000 C. $100,000 D. $150,000

3. Can the lender report both a foreclosure and cancellation of debt on Form 1099-C if they occur in the same year?

Yes No

4. If Frank and Lonnette had filed for bankruptcy, their tax return would be in scope for the VITA/TCE programs.

Yes No

Jacob and Tiffany owned and lived in their home since 2005. They could not make the mortgage payments and moved out of their home in March 2014. In August 2014, they received Form 1099-C from the mortgage company showing they were personally liable for the debt (box 5). Box 2 indicated canceled debt of $30,000. Box 3 indicated no interest. The home was never used in a business or as rental property. The original mortgage of $100,000 was used to purchase and was secured by the home. FMV on Form 1099-A, box 4 is $60,000 and the Browns owed a balance of $90,000 at the time of foreclosure. They did not file bankruptcy. 5. Which of the following is an exclusion to the general rule that cancellation of debt is income to the taxpayer?

A. Discharge of debt through bankruptcy B. Discharge of qualified principal residence indebtedness C. Discharge of debt of an insolvent taxpayer D. All of the above

6. If Jacob and Tiffany have a non-recourse loan with their lender, are they personally liable for the debt?

Yes No

7. Which of the following is not an exception to the general rule that cancellation of debt is income to the taxpayer?

A. Deductible debt B. Bequests C. Insolvency D. Certain student loans

8. The sales price of Jacob and Tiffany's home on Form 8949 and Schedule D is $______

Marie owned and lived in her home since 2005. In 2012, Marie lost her job. She started working as a teacher's assistant in 2014. In March 2014, she was struggling to make the mortgage payment on her home. She worked out a loan modification agreement with her lender and was able to reduce her monthly mortgage payment by $300, allowing her to stay in her home. Marie purchased the home in 2005 for $175,000. In March 2014, at the time of her mortgage workout, the balance owed on her mortgage was $150,000. Due to the real estate market in her area, the fair market value (FMV) of her home had declined to less than what she currently owed on the mortgage. Marie's lender issued a Form 1099-C, showing $40,000 in box 2. Box 3 indicated no interest. Form 1099-C, box 5 is checked "yes" indicating that she has a recourse loan and is personally liable for the debt. The home was never used in a business or as rental property. The mortgage was used to purchase and was secured by the home. Marie has not filed for bankruptcy. 9. Line ___ of Form 982 is used to report the reduction in basis of Marie's home.

A. 1e B. 2 C. 10a D. 10b

10. The basis of Marie's home is reduced by $40,000.

True False

Scenario 4: Ben and Mia Jones - Question 1 of 5.