Form 1099-C

[RMTurner]

Person has a 1099-C, box 2 $240098.00, box 3 $24631.00, box 7 FMV $387654.00
this cancellation is NOT due to bankruptcy, short sale or foreclosure...
They had a bad loan and found someone willing to do a new loan. This is a principal residence and are currently still residing in home.. They have no significant assets, other than 2 vehicles and this house that they owe more on then have in equity.

Dont want to have to report this amount on 1040 line 21, so will do a form 982, problem is not sure whether to check "box B" or "box E" in part 1 , then enter the $240098.00 figure on line 2 of part 1, and assume it also goes to box 4 in part 2.

Any advice or recommendations appreciated.
Have a great day!

RT

[Gary2]

Person has a 1099-C, box 2 $240098.00, box 3 $24631.00, box 7 FMV $387654.00
this cancellation is NOT due to bankruptcy, short sale or foreclosure...
They had a bad loan and found someone willing to do a new loan. This is a principal residence and are currently still residing in home.. They have no significant assets, other than 2 vehicles and this house that they owe more on then have in equity.

Dont want to have to report this amount on 1040 line 21, so will do a form 982, problem is not sure whether to check "box B" or "box E" in part 1 , then enter the $240098.00 figure on line 2 of part 1, and assume it also goes to box 4 in part 2.

Where does the new loan figure in? There shouldn't be an entry in box 7 unless there was a foreclosure or abandonment.

Owing more than their equity isn't the right calculation for insolvency. If the house is worth $387K, and they owe $240K on it, then they're not insolvent on that basis.

[RMTurner]

more info

Gary, thanks for the reply..

More information perhaps to clarify, This was NOT a foreclosure or Abandonment. The people are still living in this house and paying the mortgage it was a LOAN MODIFICATION as I was told per the homeowner...

The 2011 mortgage interest statement shows Beginning Principal Balance $593,377.11
YTD Principal Payments 8,618.33
Negative Amortization/Adjustments -200,557.99
Ending Principal Balance 379,219.97

The 1099-C, box 2 $240098.00, box 3 $24631.00, box 7 FMV $387654.00

So given the LOAN was $593,377.11 and the FMV was $387654.00 my reasoning for insolvency...
My thinking is not to report this amount on 1040 line 21, do a form 982, problem is not sure whether to check "box B" or "box E" in part 1 , then enter the $240098.00 figure on line 2 of part 1, and assume it also goes to box 4 in part 2.

This would seem more cut & dry had it been a foreclosure or bankruptcy.

Anyone with advice or recommendations appreciated.
Have a great day!

[Gary2]

The 2011 mortgage interest statement shows Beginning Principal Balance $593,377.11
YTD Principal Payments 8,618.33
Negative Amortization/Adjustments -200,557.99
Ending Principal Balance 379,219.97

The 1099-C, box 2 $240098.00, box 3 $24631.00, box 7 FMV $387654.00

That's about $210K in the hole - a lot for many people, but not necessarily for people who could afford a $600K home to begin with. Given the original purchase price, I'd review retirement accounts (yes, 401K assets count for this purpose), cars, furniture, jewelry, etc. along with credit cards, student loans, etc. to be sure that insolvency really exists. You can't just look at this one single item.

Or take the easy way out, confirm that it really qualifies under the principal residence exclusion (is it the original mortgage?), and use that. If there are state taxes involved, check whether the state adopted the federal exclusion.