Announcement

Collapse
No announcement yet.

1099-C Boxes 2 and 7

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    1099-C Boxes 2 and 7

    Taxpayer received a 1099-C with $80,000. in Box 2 and $24,000 in Box 7. The taxpayer later paid off at the closing of the
    short sale, an additional $28,000, making the actual debt discharged $52,000. If I use their figures on the Form 982
    worksheet and Form 982, can I add the $28,000 to the basis of the rental property sale?

    #2
    are you sure that the additional 28K gets subtracted from the 80K? His basis is his out of pocket cost for the property plus improvements and possibly other additions.
    Believe nothing you have not personally researched and verified.

    Comment


      #3
      1099-C Boxes 2 and 7

      Thanks for the reply. Here's how I arrived at the basis. House was converted to rental in 2008, though it was
      purchased earlier. Prior tax preparer used $78,000 as basis to be depreciated with no amount for the land.
      I added the rest as land value as the total amount paid was $98,036. The property was put up for sale or rent, with an
      asking price of$108,00 in 2008. The price was determined by a realtor's market analysis. No appraisal. It didn't
      rent until 2010 and the depreciation taken through 2013 was $10163. The total debt when surrendered was $80701.
      The box 2 amount is the same, but $28,588 was paid off at closing. The 1099-C instructions say that box 2 should
      reflect any amount paid off but it doesn't seem to do that.
      The contract sales price is $32,250 with $28,588 paid to the lender. The rest of the $32,000 is closing costs. No
      amount went to the taxpayer. When I work through the form, I can exclude $21,136 but have to then deduct
      it from the basis. So I have deducted it and then put it back. But it seems that the true facts are
      1. They had true COD of $80,701
      2. They also had a total loss of $98,036-$10,163 or $87,873.
      It does not work out that way using the numbers on the 1099-C The 1099-C does not seem to reflect the
      additional payment made to the lender. What am I missing?

      Comment


        #4
        I assume that box 5 is checked? This is the way I see it:


        I would report the full $80,000 on Line 21 as cancellation of debt, but then counteract it by adding $28,000 to Line 21 for the amount of COD that was "repaid". That is reporting the correct and true cancellation of debt ($54,000). Using ProSeries, both numbers show up on Line 21 so the IRS computers can still 'see' the $80,000 on the 1099-C.


        The basis for a loss is the lower of FMV at rental conversion and the cost basis (purchase price + improvements). Let's assume that is still $98,000. With the depreciation, that is a basis of $87,873.

        Box 7 on the 1099-C should be the 'selling price'. I don't understand why it says $24,000, if the contract price is $32,250 and the net proceeds after selling expenses is $28,558.

        Basis of $87,873 and a sales price of $28,558 (or box 7 $24,000) leaves a loss of $59,315 (or $63,873 if using box 7).


        I'm not good with Form 982, but I don't see why you would need it. It is an "election" to reduce the basis by the COD. Without Form 982, you are reporting $54,000 in income and a $59,315 loss. If you made the election and Filed Form 982, you would just report $0 income and $5,315 loss ($87,873 basis minus $54,000 excluded COD income, minus the 'selling price' of $28,558 or box 7 $24,000).

        I would leave out Form 982, report the $54,000 of income and report the $59,315 loss.


        Again, maybe I'm wrong or mixed something up (my brain is still scrambled from tax season), but that is what the situation looks like to me.
        Last edited by TaxGuyBill; 04-20-2014, 03:12 PM. Reason: Corrrected a Math Error

        Comment


          #5
          1099-C Boxes 2 and 7

          I will take your advice. It makes sense. Thank you and have a Happy Easter. You've certainly helped me a lot and I
          appreciate your taking the time to explain it so clearly.
          nanellen

          Comment

          Working...
          X