abandonment of residence and bankruptcy discharge

[POCAHONTAS]

client received 1009-A

box 2 $275,776.76
box 4 $220,500.00

client not personally liable for the repayment of the debt therefore it is a non-recourse debt, and so in this case the fmv is "deemed" to be "not less than" the balance on the non-recourse mortgage.

client filed bankruptcy and the foreclosure was discharged.

so I report the 1099-A as a sale and client qualifies for 121 Exclusion, which I report on schedule D,

so the question is am I correct so far and do I do form 982 for this client also how do I report the 121 Exclusion on schedule D.

thanks

[OtisMozzetti]

sale of residence 121 exclusion

so I report the 1099-A as a sale and client qualifies for 121 Exclusion, which I report on schedule D,

so the question is am I correct so far and do I do form 982 for this client also how do I report the 121 Exclusion on schedule D.
...

Look under sale of residence exclusion in Publ. 17, where it says "do not" report (on Schedule D) home sale if all of gain is excluded. If you really want to report the home sale on Schedule D, however, then put the sale on one line and a second line below there entitled "Section 121 exclusion" with a negative number equal to the gain computed on the first line.

[POCAHONTAS]

otis

my understanding is that the sale of a residence and a foreclosure of a residence has different rules. I have talked to the IRS and have read several discussions on the 1099-A and am trying to make sure that I understand, there is a good discussion on this forum on this subject posted on 3/3/2009 by Possi titled "1099a Answers found in Search". In this discussion Gary discusses his response from the IRS I also had the same exact response from the IRS.

I am hoping that someone on this forum will respond and confirm my post.

[David1980]

You won't do a 982 because there is no cancellation of debt income (due to it being non-recourse.) So the only thing you have is a sale of main home at $275,776.26. Unless they refinanced, you likely have a small loss which they cannot claim. Following IRS Schedule D instructions it does indicate not to report the sale.

However, IRS publication 523 has additional info if a 1099-S is received. It indicates not to report the sale of main home at a loss unless "You have a loss and you received Form 1099-S." My guess is this is done so they know whether or not the 121 exclusion has been used for any future home sales.

So the question then becomes do you have to report the sale of main home at a loss when a 1099-A is received? 523 specifically says 1099-S so I would take the literal approach and say no, no reporting required. But were you to file a Schedule D showing the disallowed loss I don't think it would cause problems. And if they did refinance to higher than what they bought the home for, then they might have a gain and section 121 could apply. Both Schedule D and Pub 523 indicate no reporting required - so I'd treat it the same. Not required, but probably not going to cause problems should you report it anyway.

Personally, I'd simply not report it and should the taxpayer get a letter a phone call to the IRS ought to clear it up.

[POCAHONTAS]

thanks David

but according to the IRS a 1099A must be reported and if there is a 121 exclusion, even though there may be a loss you must report it on schedule D showing column F as zero.

Again there is a discussion on this forum on 3/3/2009 started by Possi titled "1099a Answers found in Search" perhaps if you read that you'll know what I mean, and there are similar discussions on this subject on other forums.

There is also info on foreclosures pub 544 page 5.

[David1980]

I don't see the problem. If you feel you must report it, simply fill out a schedule D. If it's a loss fill it out like normal but "0" in the gain/loss column. If it's a gain show the gain and the section 121 exclusion on the next line.