My client lived in a house 2 1/2 years of the last 5. This was her and her husbands principal residence. They moved out 2 1/2 years ago and rented the home out for 1 1/2. The house was sold short in 2012 and its fair market value was 100,000 less than the purchase price. Client received a 1099 C for 114K.
Can I exclude this income on form 982 as principal residence exclusion and treat the sale of the home on form 4797?
I was told at a tax course that the home would still qualify as principal residence because the taxpayer lived it for at least 2 of the last 5 years.
My thinking is that I lower the basis of the home on the depreciation schedule by the forgiveness of debt, free up and utilize the passive activity losses from the rental property and pick up gain to the extent of depreciation recapture. I file form 982 checking the box for principal residence, excluding the discharge of debt and showing on 982 that the residence's basis will be lowered by this same amount. Is this correct?
NOTE: The entire debt was acquired to purchase and improve the house. No debt was refinanced or used for nonqualifying means.
Some of this cancellation of debt may have been increased to pay for selling expenses on the short sale or accrued interest. I am waiting for the client to provide details on that. How might this be factored in assuming there were selling expenses paid by the bank or accrued interest on top of the mortgage?
Can I exclude this income on form 982 as principal residence exclusion and treat the sale of the home on form 4797?
I was told at a tax course that the home would still qualify as principal residence because the taxpayer lived it for at least 2 of the last 5 years.
My thinking is that I lower the basis of the home on the depreciation schedule by the forgiveness of debt, free up and utilize the passive activity losses from the rental property and pick up gain to the extent of depreciation recapture. I file form 982 checking the box for principal residence, excluding the discharge of debt and showing on 982 that the residence's basis will be lowered by this same amount. Is this correct?
NOTE: The entire debt was acquired to purchase and improve the house. No debt was refinanced or used for nonqualifying means.
Some of this cancellation of debt may have been increased to pay for selling expenses on the short sale or accrued interest. I am waiting for the client to provide details on that. How might this be factored in assuming there were selling expenses paid by the bank or accrued interest on top of the mortgage?
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