Client did a short sale on her principal residence. She qualifies under the federal rules for a qualified principal residence exclusion but for Calif they do not conform so I need to find out if she is insolvent.
On form 1099-C it shows amount canceled in box 2 as 330,000. Then in Box 3 it says Interest if included in box 2 40,000. Then she also received a 1098 showing mortage interest received by the bank in the amount of 34,000. She didn't pay this. I am assuming it came from the proceeds of the short sale or they would not have issued the 1098.
My question is what is the amount of COD income? Is it 330,000? Or is it 330,000-40,000=290,000 because 40,000 would be deductible if it had been paid, or would
it be 330,000-6,000=324,000 because 34,000 of interest was deducted from the form 1098 and therefore you take the difference 40,000-34,000 which is 6,000 and subtract from the 330,000 as I indicated above.
Thanks!
GTS1101
On form 1099-C it shows amount canceled in box 2 as 330,000. Then in Box 3 it says Interest if included in box 2 40,000. Then she also received a 1098 showing mortage interest received by the bank in the amount of 34,000. She didn't pay this. I am assuming it came from the proceeds of the short sale or they would not have issued the 1098.
My question is what is the amount of COD income? Is it 330,000? Or is it 330,000-40,000=290,000 because 40,000 would be deductible if it had been paid, or would
it be 330,000-6,000=324,000 because 34,000 of interest was deducted from the form 1098 and therefore you take the difference 40,000-34,000 which is 6,000 and subtract from the 330,000 as I indicated above.
Thanks!
GTS1101
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