Form 1099-A: Acquisition or Abandonment of Secured Property

Don’t give it away, throw it away! If your business abandons property or loses secured assets, the IRS may require the lender to file Form 1099-A: Acquisition or Abandonment of Secured Property. Understanding this form helps you claim ordinary losses, offset taxable income, and avoid surprises during tax season. Whether it’s machinery, real estate, or a business patent, properly documenting abandonment can turn a potential loss into a tax benefit.

Overview

Abandonment losses occur when a business permanently gives up property used in trade or business.
Form 1099-A: Acquisition or Abandonment of Secured Property is often issued by lenders and helps document losses for IRS reporting.
Abandonment losses are usually treated as ordinary deductions, reducing taxable income even without capital gains.
Examples include machinery, trademarks, R&D equipment, real estate, and partnership interests.

Table of Contents

What are Abandonment Losses?

An abandonment loss occurs when you permanently give up ownership and use of property without transferring it to someone else. This can happen if the property becomes obsolete or you simply decide to walk away.

Key Advantages

Abandonment is not considered a sale or exchange. This is why, in most cases, an abandonment loss is treated as an ordinary loss for tax purposes regardless of whether or not the asset was a capital asset.

Reduce taxable income: Abandonment losses from business activities can offset your ordinary income, resulting in a lower tax liability.
Ordinary deduction: Abandonment losses from property used in business are generally treated as ordinary deductions, offering more tax benefits than capital loss deductions.
No gains required: Unlike capital losses from investments, abandonment losses from property used in business can be used even if you have no capital gains to offset them.
Form 1099-A verification: Information from Form 1099-A helps verify the amount and date of abandonment for IRS reporting.

Example: A business abandons equipment with a $5,000 adjusted basis. Using Form 1099-A reporting, the business can deduct the $5,000 as an ordinary loss even if there were no capital gains.

Claiming the Deduction

You can deduct losses from abandoning various property types, including:

Tangible property (buildings, equipment)
Intangible property (patents, trademarks)
Real estate
Partnership interests
Other depreciable assets

If you find yourself with an abandonment loss, you can enjoy an ordinary loss up to the lesser of:

The amount you paid for the property or
Your adjusted basis (original cost +/- tax adjustments).

Step-by-Step Claiming Process

Document Ownership – Maintain proof of ownership and cost basis.
Document Business Use – Show the property was used in trade or business.
Document Intent to Abandon – Include board resolutions, emails, or internal memos.
Verify No Consideration Received – Ensure no payment or loan forgiveness occurred.
Use Form 1099-A for Reference – Check Box 1 (date of abandonment), Box 2 (principal balance), Box 4 (fair market value), Box 5 (personal liability), Box 6 (property description).
Determine Your Basis – Calculate adjusted basis (original cost + improvements – depreciation) to determine deduction limit.

To claim an abandonment loss, you need to:

Prove ownership: Document your ownership of the property before abandonment.
Demonstrate business use: Show the property was used in a business activity.
Prove intent to abandon: Provide evidence of your clear intention and action to abandon the property
Confirm no consideration: verify that no consideration or value was received during the abandonment process. If your property is given up in exchange for forgiveness on a loan, you received consideration and an abandonment loss did not occur
Determine your basis: Calculate your adjusted basis in the property (original cost + improvements - depreciation) to determine the deduction limit.

How it Works

In order to claim a deduction for the abandonment of property, you should be able to show:

Ownership of the property prior to abandonment
The property used in a trade or business, or a transaction entered into for profit
Intent and affirmative action to abandon the property

Important Considerations

Simply not using a property doesn't constitute abandonment.
Property involved in bankruptcy proceedings is not considered abandoned.
Securities (stocks, bonds) are handled differently and considered capital losses when worthless.
COD income may arise if the borrower is personally liable (Box 5).
Jurisdictional differences in foreclosure or repossession law may impact treatment.
Documentation of intent and action is critical: proof of ownership, business use, intent, and no consideration received.

‍Examples of Abandonment Losses in Business

Machinery Abandonment
A company purchases machinery for $25,000 to use in production. After 8 years, the equipment becomes obsolete due to new technology, and the company decides to permanently stop using it. The adjusted basis of the machinery is $5,000 after accounting for depreciation. Because the property is permanently abandoned and used in business, the $5,000 adjusted basis qualifies as an ordinary loss. The company can claim this deduction on its taxes, reducing taxable income even though there was no sale or transfer.
Abandoned Trademark
A business undergoes a complete rebranding and decides to abandon an old trademark. Even though the trademark may have some residual value, the company no longer uses it and does not sell or transfer it. The cost basis in the trademark is fully deductible as an abandonment loss, allowing the business to write off the investment on its tax return. Proper documentation of abandonment, including board resolutions or legal filings, is necessary to support the deduction.
R&D Equipment Abandonment
A research and development department purchases specialized equipment for experimental projects. After the projects conclude, the equipment is no longer needed and cannot be sold. Even if the company had no capital gains during the year, the adjusted basis of the equipment qualifies for an ordinary loss deduction. By documenting ownership, business use, and the intention to abandon, the company ensures compliance while maximizing tax benefits.
Abandoned Real Estate
A business owns a warehouse that it no longer needs due to downsizing. The property is left unused and eventually vacated permanently. If the company documents its intent to abandon and the property’s adjusted basis is properly calculated, the cost of the abandoned real estate can be claimed as an ordinary loss. Lenders may issue a Form 1099-A if the property was secured, which provides a reference for IRS reporting.
Abandoned Partnership Interest
A business holds a partnership interest that becomes worthless due to the partner going out of business. By formally abandoning the partnership interest and documenting the decision, the business can claim an ordinary loss deduction. This example highlights that abandonment losses are not limited to tangible assets but also apply to intangible business interests.

FAQs

Q: What types of property qualify for abandonment losses?
A: Only business or investment property qualifies. Personal-use property is not deductible.

Q: Who files Form 1099-A?
A: The lender files Form 1099-A. The borrower uses it for reporting gains, losses, or COD income.

Q: Can I claim a deduction if debt is forgiven?
A: If the borrower was personally liable, canceled debt may be taxable as COD income.

Q: How do I properly document abandonment?
A: Keep ownership records, proof of business use, and evidence of intent, such as emails, notices, or board resolutions.

Q: Does partial abandonment count?
A: Only property fully abandoned, permanently and with clear intent, qualifies for an ordinary deduction.

Turning Abandoned Property Into Tax Savings

Abandonment losses can be a powerful tool for businesses to reduce taxable income, but they require careful documentation and understanding of IRS rules. Whether it’s machinery, real estate, patents, trademarks, or partnership interests, permanently giving up property used in business can generate an ordinary loss deduction that offsets ordinary income—even if there are no capital gains to apply it against.

Additionally, when a lender is involved in a secured transaction, they may file Form 1099-A: Acquisition or Abandonment of Secured Property, which provides key information such as the date of abandonment, outstanding principal, and property description. Using this form correctly can help ensure your deductions are properly calculated and fully supported in case of an IRS review.

By understanding the rules around abandonment losses and leveraging Form 1099-A, businesses can turn property they no longer use into a strategic tax advantage. Proper planning, clear documentation, and consultation with tax professionals are essential to maximize benefits and remain compliant.

We Can Help

Abandonment losses and Form 1099-A: Acquisition or Abandonment of Secured Property can be complex, but you don’t have to navigate them alone. Gelt’s tax strategists specialize in helping businesses identify overlooked deductions, properly document abandoned property, and optimize tax strategies year-round.

Contact us today to ensure your business claims all eligible deductions, leverages Form 1099-A effectively, and stays fully compliant with IRS rules. Turn potential losses into real savings with expert guidance from Gelt.

‍

This information is for educational purposes only and does not constitute legal or investment advice. Consult a qualified professional before making any investment decisions.

‍