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    #1

    COD on rental property

    Client bought rental condo in 2006 for $275,000. Rented it for several years. It has been on the market for 3 years now. No one living in house since 2010 or maybe beginnning of 2011. Sold house, short sale, $143,000. Got 2 1099C for 123,000 and 12,000.

    I have been trying to figure out if any of the exceptions apply to them on Form 982. Does a rental house qualify as Qualified Real Estate Property Business Debt?

    Linda, EA
    Tags: None
    #2
    Disposal of Rental Home

    I don't believe the 982 exclusion applies to residential rental. But, if you dispose of the property via a form 4797, even taking off depreciation from the basis, you should have a fairly significant loss as opposed to a taxable COD gain. Try doing that using the FMV of both 1099C's (I assume they had a second mortgage?) as the sales price and don't forget to take the part year depreciation for 2011 if they didn't sell it until 2011 and see how that comes out. I wagged (that would be a Wild A** Guess, for you non-military folks) it and came up with a loss.

    Kathy

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      #3
      Form 982

      Someone posted in another thread but I couldn't find it today when I was looking for it with a reference to articles by David M Fogel, CPA, http://fogelcpa.com.
      He had flowcharts for short sales/ foreclosures and for Section 108 exclusions.

      It says on that sheet that Rental property is business property. It also says it is available only for acquisition debt and you must reduce property's basis by exclusion.

      Not sure how you figured a loss. I end up with a gain. Even so to me it looks like they will have a gain. I may have to go the insolvency route for them.

      Linda, EA

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        #4
        update

        Just got an email from client. The second mortgage was part of the purchase of the property. So it would get the same treatment as the first mortgage.

        She also gave me the purchase price of the property, which includes the land value. The amount I mentioned before was just the basis for depreciation. Also the balance on the mortgage when the house sold was just a few hundred dollars shy of what they paid for it.

        I will redo the figures and see how it comes out.

        Any other comments or explanations would be greatly appreciated. I am dealing with something that many of you do frequently but I have not had one of these yet. So I am in uncharted waters for me.

        Linda, EA
        Last edited by oceanlovin'ea; 04-30-2012, 06:31 PM.

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          #5
          Rental Property Short Sale

          Originally posted by oceanlovin'ea View Post
          Someone posted in another thread but I couldn't find it today when I was looking for it with a reference to articles by David M Fogel, CPA, http://fogelcpa.com.
          He had flowcharts for short sales/ foreclosures and for Section 108 exclusions.

          It says on that sheet that Rental property is business property. It also says it is available only for acquisition debt and you must reduce property's basis by exclusion.

          Not sure how you figured a loss. I end up with a gain. Even so to me it looks like they will have a gain. I may have to go the insolvency route for them.

          Linda, EA
          It was from the Rental Property Short Sale thread on 4-2-2012, and Gary2 left this message:
          Go to http://fogelcpa.com/articles.aspx and read all of the articles relating to canceled debt, foreclosures, and short sales (four articles, I think). Also check out his flowchart (the first link).

          I wasn't sure if you said you were looking for the thread or if you found the thread. I LOVED IT.
          "I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur Godfrey

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            #6
            thanks

            I hadn't found the thread but I had printed out the flowcharts so I got some information from them.
            The only problem I had with his information was that he talked a lot about CA and of course none of that applies to my situation. I got a little confused. I will have to go back and read it again.

            Linda, EA

            Comment

              #7
              Originally posted by oceanlovin'ea View Post
              Someone posted in another thread but I couldn't find it today when I was looking for it with a reference to articles by David M Fogel, CPA, http://fogelcpa.com.
              He had flowcharts for short sales/ foreclosures and for Section 108 exclusions.

              It says on that sheet that Rental property is business property.
              What he says in his article "Tax Aspects of Rental Property Foreclosures and 'Short Sales'" is that it's a facts and circumstances issue. Is rental of residential real estate the client's livelihood? Or simply an investment? Is there anything about it that would tempt you to put it on a Schedule C instead of E? If not, then it's probably not a business.

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                #8
                ...and keep in mind that you have two transactions, 1. the sale of the property, 2. COD income.

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                  #9
                  Beanna

                  I emailed Beanna Whitlock to ask her if she had some printed information on the subject. She taught a class at Auburn last year on it. So she sent me the section of the material on CODI and sales of the property. It is very clear and understandable.

                  If anyone would like to have a copy of it, send me an email. I don't think Beanna would object to me sharing with someone else who needed it.

                  Linda, EA

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