I have a tax client that received a Form 1099-A for 2011.
Here are the facts:
1.The property is located in Arizona and was purchased on 12.6.2004 and couple lives in Ohio.
2. The property was bought with the intention of making some improvements and then flipping it (INVESTMENT). It was never intended to be a residence.
3. Purchase price was $200,000 with a $40K down payment.
4. After the improvements were made the t/p's attempted to sell the property during the period of 2006 through 2008 to no avail. At the end of 2008 the property was put up for rent and the property was rented at the end of 2008 through 2009. The property has not been rented since 2009 and the t/p's stopped making mortgage payments starting in 2010.
5. During the rental period depreciation was taken on the property.
6. All improvements and other expenses incurred such as real estate taxes were capitalized during the period the property was not occupied.
The t/p's received a Form 1099-A for 2011 with the following information:
Block 1 Date of Aquisition 2.25.2011
Block 2 Balance of principal outstanding $170,759.38
Block 4 FMV $80,000
Block 5 was not checked which leads one to believe the t/p is not liable and therefore debt is non-recourse
This is my first experience with a Form-1099-A regarding rental property and therefore would like to do it correctly and appreciate your comments and guidance.
After much research and confusion, I have concluded that the property under IRC 108(c)(3)(A) would qualify to be treated as Qualified Real Property Business Indebtedness. As such, loss from the abandonment of business or investment property is deductible as an ordinary loss, even if the the property is a capital asset.
Since the the property has been foreclosed and a deemed sale taken place-a gain or loss on the sale must be figured.
My calculation of gain <loss>
Amount Realized From Sale $170,759
Cost Basis Of Property $220,413
Depreciation Taken - 8,943
Adjusted Basis 211,470
Loss On Sale -40,711
Loss on sale will first be reported on Form 4797 and flow through to the 1040 as an ordinary loss.
Again, I appreciate your comments and guidance.
Thank you
Here are the facts:
1.The property is located in Arizona and was purchased on 12.6.2004 and couple lives in Ohio.
2. The property was bought with the intention of making some improvements and then flipping it (INVESTMENT). It was never intended to be a residence.
3. Purchase price was $200,000 with a $40K down payment.
4. After the improvements were made the t/p's attempted to sell the property during the period of 2006 through 2008 to no avail. At the end of 2008 the property was put up for rent and the property was rented at the end of 2008 through 2009. The property has not been rented since 2009 and the t/p's stopped making mortgage payments starting in 2010.
5. During the rental period depreciation was taken on the property.
6. All improvements and other expenses incurred such as real estate taxes were capitalized during the period the property was not occupied.
The t/p's received a Form 1099-A for 2011 with the following information:
Block 1 Date of Aquisition 2.25.2011
Block 2 Balance of principal outstanding $170,759.38
Block 4 FMV $80,000
Block 5 was not checked which leads one to believe the t/p is not liable and therefore debt is non-recourse
This is my first experience with a Form-1099-A regarding rental property and therefore would like to do it correctly and appreciate your comments and guidance.
After much research and confusion, I have concluded that the property under IRC 108(c)(3)(A) would qualify to be treated as Qualified Real Property Business Indebtedness. As such, loss from the abandonment of business or investment property is deductible as an ordinary loss, even if the the property is a capital asset.
Since the the property has been foreclosed and a deemed sale taken place-a gain or loss on the sale must be figured.
My calculation of gain <loss>
Amount Realized From Sale $170,759
Cost Basis Of Property $220,413
Depreciation Taken - 8,943
Adjusted Basis 211,470
Loss On Sale -40,711
Loss on sale will first be reported on Form 4797 and flow through to the 1040 as an ordinary loss.
Again, I appreciate your comments and guidance.
Thank you