cancellation of debt

[KWF]

A non resident of Colorado owns real estate there. The property is foreclosed on generating federally taxable cancellation of debt income. Would the codi be taxable income to Colorado, or would non residency eliminate Colorado taxability?

The Colorado regs indicate income "earned" in that state are taxable to non residents, but do not specify if codi is considered earned income.

[erchess]

Bump

I'm curious about this.

[oceanlovin'ea]

2 years ago I had a client who lives in Florida but inherited property in New York state. He had to file a New York state tax return for 2 years because they got some money in each year.
It was a loss but it still had to file a New york state return.

Linda, EA

[Burke]

Colorado starts with federal taxable income, so CODI would be included as part of that figure, unless fed taxable income were zero after deductions and exemptions. Since it involves "ownership of any interest in real or tangible personal property in Colorado" it would be shown in the Colorado column of Form 104PN for non-residents. Then you go from there. TTB All States CO-4.

[Gary2]

Colorado starts with federal taxable income, so CODI would be included as part of that figure, unless fed taxable income were zero after deductions and exemptions. Since it involves "ownership of any interest in real or tangible personal property in Colorado" it would be shown in the Colorado column of Form 104PN for non-residents. Then you go from there. TTB All States CO-4.

But does it involve ownership of property? Suppose, for example, you have a recourse loan secured by property in CO. In 2010, there's a foreclosure with a 1099-A, with a loan balance of $250K but a FMV of $200K. This leaves $50K of debt that is now unsecured. There's no requirement that the lender cancel the remaining $50K at this time. Since it's recourse debt, they could try to sue the borrower, and perhaps in 2011 decided to give up, and issue the 1099-C. Is it still CO income?

So now rewind, and do it the common way, issuing the 1099-C with the same date as the foreclosure. The cancellation still takes place after the foreclosure, even if it's the same day. The canceled debt is what remains after the real property has been removed from the equation. In this case, is it still CO income?

I don't know the answer, but my gut tells me that it's distinctively different from the common case of rental real estate, such as the NY example cited, where the real property is itself the reason for the income.

[DonB]

COD Colorado?

A non resident of Colorado owns real estate there. The property is foreclosed on generating federally taxable cancellation of debt income. Would the codi be taxable income to Colorado, or would non residency eliminate Colorado taxability?

The Colorado regs indicate income "earned" in that state are taxable to non residents, but do not specify if codi is considered earned income.

Colorado FYI-6 says: NR-- file if you "had taxable Colorado-source income" and gives rental income as an example. If a NR sells Colorado real estate for a profit, it would be Colorado income and I'm thinking so is COD income.