1099 C for personal home

[Possi]

My client's personal home was sold on a "short sale."

The 1099 C Bx 2 is 72,885.
Bx 5 says the borrower is liable for repayment of the debt.

The assessment was for 225,000, FMV was 200,000 acccording to my client (bx 7 FMV is zero, as though it was not filled out.)

The house sold on a short sale for 150,000.

Since it sold for more than the amt of debt canceled, is there no taxable income?

Treat it as personal home sold at no gain?

Dennis helped me find an old thread regarding 1099A, but nothing really hit on this situation. It is not business property, and it did sell for more than the debt canceled.

thanks!!

[Gary2]

I think you're misreading it. A short sale, by definition, is less than the amount owed on the mortgage. It sounds like the balance due was approximately $225,000, it sold for $150,000, so that the canceled debt of $72K is about right.

Box 7 is blank because there was no abandonment or foreclosure. Taxpayer sold the house for $150K, giving them a non-deductible personal loss based on their purchase price (presumably - I suppose they could have bought it for much less, then refinanced at the market peak).

[Possi]

Now what?

I think you're misreading it. A short sale, by definition, is less than the amount owed on the mortgage. It sounds like the balance due was approximately $225,000, it sold for $150,000, so that the canceled debt of $72K is about right.

Box 7 is blank because there was no abandonment or foreclosure. Taxpayer sold the house for $150K, giving them a non-deductible personal loss based on their purchase price (presumably - I suppose they could have bought it for much less, then refinanced at the market peak).

Oh my gosh. I never thought to read it like that! So, he has to pay tax on $72k of canceled debt? Please say it's not true... I must be reading that wrong, too... please?

[JON]

You need

some better advice, but I thought they extended to 2012 non recognition on personal residence. Now that is for acquisition (plus improvements) debt only. I do not know if the 1099A or 1099C has any bearing, but maybe some more knowledge will follow.

[Gary2]

I didn't mean to suggest it was all taxable. The Mortgage Forgiveness Act still applies, as do any of the other applicable exclusions of canceled debt. See Pub 4681.

[Possi]

Pub 4681

I didn't mean to suggest it was all taxable. The Mortgage Forgiveness Act still applies, as do any of the other applicable exclusions of canceled debt. See Pub 4681.

From Pub 4681:
"You can exclude canceled debt from income if it is qualified principal residence indebtedness. Qualified principal residence indebtedness is any mortgage you took out to buy, build, or substantially improve your main home. It also must be secured by your main home. Qualified principal residence indebtedness also includes any debt secured by your main home that you used to refinance a mortgage you took out to buy, build, or substantially improve your main home, but only up to the amount of the old mortgage principal just before the refinancing.




How to report the qualified principal residence indebtedness exclusion. To show that all or part of your canceled debt is excluded from income because it is qualified principal residence indebtedness, attach Form 982 to your federal income tax return and check the box on line 1e. On line 2 of Form 982, include the amount of canceled qualified principal residence indebtedness, but not more than the amount of the exclusion limit (explained earlier). If you continue to own your home after a cancellation of qualified principal residence indebtedness, you must reduce your basis in the home as explained under Reduction of Tax Attributes, later."

I checked 1E and put the total in line 2. Now it is asking me to enter the total for reducing basis in the home, on line 10B, but it is no longer his home. It was a great loss.

Are 1E and line 2 the only lines I need to fill in on the form 982? That is how it appears, but I am afraid of screwing this up.
Thanks for your help. I would NOT have known where to go to study this~~

DUH, I just re-read the instructions and it clearly says that you only reduce basis if you still own the home. Thanks for hangin with me....