Question

A taxpayer received Form 1099-A with box 5 checked, indicating recourse debt. This informs the tax preparer that:

a. There may be taxable income associated with this event.

b. There cannot be taxable income associated with this event.

c. There can be capital gain from this event, but not ordinary income.

Answer 1

The answer is option c.

Form 1099-A reports details about the sale, including the date of the transfer, the fair market value (FMV) of the property at the time of the transfer, and the loan balance on the date of the transfer. This information helps the seller determine if there is a gain or loss on the sale of the property and if any capital gains taxes are due.

Other options a and b are not suitable for form 1099-A answer. Option a only tells about the taxable income associated with the event. Form 1099-A cannot say about the tax payment. Also, that option b tells about no tax on the transaction. This form cannot say about that one option.

Clearly, we can get a view from Form 1099-A is that the gain or loss of property and other details about the sale of property.