Gain or Loss: Short Saled Rental formerly residence

[equinecpa]

Here are the basic facts:

Taxpayer purchased home as principal residence in 2006 for $165,000

Moved and converted to rental in 2007, at that time FMV was $120,000 (per Depn schedule-lot acb/fmv not indicated)

Short Saled July 2011. Debt paid off: $108000

1099-c for: $50000

Depn taken since 2008: $15000

I believe for calculating a loss the formula is lower of cost or fmv at time of conversion to rental: Proceeds 108,000 less ACB(120000-15000)=3000 so not a loss here

And for a gain the formula is Proceeds less (original cost less depn): 108000-(165000-15000)=$58,000 loss

So do I have neither gain or loss here? So what do I report on the schedule D/4797? The taxpayer is excluding the 1099-c from income due to insolvency (Filing 982).

Despite the 982 does the 1099-c figure need to be brought into the equation somewhere?

Thanks for any assistance!

Carolyn

[appelman]

Look at Table 1-1 on p.6 of Pub. 4681.

Assuming that this is a recourse loan, and that the 108K represents the proceeds from the short sale. I'd say you are doing it right. You do want to double check that numbers on the 1099-C make sense. The numbers you give imply that the loan balance before the short sale was 158K. Was it?

On Form 4797, Part 1, I would report gross sales price = 108K, depreciation = 15K, basis = 123K. (Your software may give you a "Sale of business property" worksheet to use.) Nothing will flow to Schedule D.

When you talk about "the 1099-C figure," I presume you mean Line 2. This goes on Line 21 of the 1040, unless the taxpayer qualifies for one of the exclusions, in which case you have to complete Form 982.