How to enter 1099-S on excess proceeds on foreclosure

[ingra003]

My mom’s husband died in February 2018. His name was the only name on the mortgage at the time of death. The home went into foreclosure and the home was sold in March 2022. In 2024, my mom received the excess proceeds from that sale. She has now received a 1099-S from the company that sold the home. Box 1 has the date of closing from March 2022, Box 2 has the gross proceeds, and Box 3 has the address of the foreclosed home. Where and how do I need to report this on my mom’s taxes?

[KrisD15]

The 1099-S can be entered under 

Wages & Income

Less Common Income

Sale of Home (gain or loss)    START

The difficult part will be determining how much was profit, since that will be based on her adjusted basis. 

In 2018, did she inherited the property? 

Do you have any idea on the Fair Market Value of the home at that time?

If she inherited it, her adjusted basis would be that value. 

If the home was worth 100,000 in 2018 and your mother inherited it, her adjusted basis would be 100,000

If the loan on the property was 75,000, the 1099-S would be reporting the difference of the sale less the loan.

So if the property sold at 120,000, the 1099-S would report 45,000 but only 20,000 would be Capital gain.

If the home was worth 100,000 in 2018 and your mother inherited it, her adjusted basis would be 100,000

If the loan on the property was 75,000, the 1099-S would be reporting the difference of the sale less the loan.

So if the property sold at 90,000, the 1099-S would report 15,000 but it would really be a 10,000 loss. 

(it sold for 90,000 the lender took 75,000 so your mother gets 15,000 but it sold for 10,000 less than her basis, so for her it was a loss)

Since it sold at excess of the loan, your mother does not claim any canceled debt as income. 

Another issue would be if she owned and lived in the home for at least two of the five years preceding the sale. 

In that case, she could exclude up to 250,000 of the gain. 

HERE are links that might help

 Pub 544 Sale of assets 

Pub 523 Selling you home 

TurboTax tax tip for foreclosures

[ingra003]

@KrisD15,

Her husband did not have a will and the mortgage company would not put it in her name. His two siblings and my mother were listed as heirs to the estate in probate court. The home was sold at auction for 160,000 in March 2022. The company used the proceeds of the sale to pay off the remainder of the mortgage. Then, the excess was put in the estate in June 2024, but the estate was already considered insolvent by that time. Neither of the siblings want anything to do with the proceeds, so they removed themselves from the pot.

The fair market value of the home at the time of his death was $158,300.

She started living in the home in 2013 but moved in with me in July 2021.

Since the foreclosure and sale occurred in 2022, TT is saying the information should not be reported in the 2024 tax return even though the proceeds were received in 2024 and the 1099-S is for 2024. I'm just really confused at how to proceed.

[MarilynG1 · Accepted solution]

You don't actually enter the 1099-S anywhere in TurboTax, just the info from it, if required. 

Since the deceased owner's spouse lived in the home for more than two of the last five years prior to sale, it would be considered as the sale of her main home, even if the mortgage company didn't put it in her name. By default, after her husband's death, she inherits the home, as a legal spouse. 

This falls under the Home Sale Exclusion, so unless she made over 250K on the sale, she wouldn't even need to report it in TurboTax.

Save the 1099-S with her tax records.

@ingra003 

[ingra003]

Thank you. This is really helpful information.