Form 982 Rental Foreclosure

[GTS1101]

My client foreclosed on his rental property in October 2008. He is insolvent beyond the amount of debt that was cancelled, therefore he has no cancellation of debt income. The whole 105,000 that was canceled is going to be excluded from income due to the insolvency exclusion. This is a recourse loan. When computing the gain or loss on foreclosure it looks like from form 982 I need to reduce his adjusted basis by the amount of canceled debt?

FMV of rental home when foreclosed 330,000

Adusted basis 380,000 - 105,000 = 275,000
Depreciation 30,397

So does this mean he would have a gain of 85,397 on this foreclosure? 330,000 - 244,603=85,397.

Any help or guidance would be greatly appreciated. This form 982 is very confusing.

Thanks!

GTS1101

[JG EA]

Here is my understanding and maybe someone will jump in if this is off base. This is not my favorite subject. However, first you have the cancellation of debt. If there is any debt that needs to go on Line 21 then you do the 982.

Then you do the sale. You don't exclude the sale on 982 because that is for Discharge of
Indebtedness.

[Gretel]

My client foreclosed on his rental property in October 2008. He is insolvent beyond the amount of debt that was cancelled, therefore he has no cancellation of debt income. The whole 105,000 that was canceled is going to be excluded from income due to the insolvency exclusion. This is a recourse loan. When computing the gain or loss on foreclosure it looks like from form 982 I need to reduce his adjusted basis by the amount of canceled debt?

FMV of rental home when foreclosed 330,000

Adusted basis 380,000 - 105,000 = 275,000
Depreciation 30,397

So does this mean he would have a gain of 85,397 on this foreclosure? 330,000 - 244,603=85,397.

Any help or guidance would be greatly appreciated. This form 982 is very confusing.

Thanks!

GTS1101

I believe his gain is $85,397 if he is indeed insolvent. Does client have any retirement accounts? Everything counts for insolvency.