received 1099c for non recourse loan on rental property

[Judy rocks]

my client received a 1099C for a rental property he owned and sold at a short sale, it was in California (he lives in California also) where all original loans are non recourse loans. The client never refinanced. The client is not insolvent. (1) was this an incorrect sending of a 1099C - one that shouldn't have been sent - if so how would you handle it on the tax return -

[Roberts]

So they received a 1099c and a 1099misc?

[Judy rocks]

they did not get a 1099 misc - just a 1099C

and of course I have the escrow closing statement from the short sale

[Gary2]

my client received a 1099C for a rental property he owned and sold at a short sale, it was in California (he lives in California also) where all original loans are non recourse loans. The client never refinanced. The client is not insolvent. (1) was this an incorrect sending of a 1099C - one that shouldn't have been sent - if so how would you handle it on the tax return -

First, it's not incorrect. It gets sent for both recourse and non-recourse loans. If the loan was indeed non-recourse, then box 5 shouldn't be checked.

Second, are you sure that the rule about original loans being non-recourse applies to rentals? In some places, it only applies if the home is going to be used as a personal residence.

Third, there wouldn't be a 1099-MISC, but there might be a 1099-S.

Finally, make sure the sale is reported on the 4797. Assuming that classification as non-recourse is correct, then the selling price will be adjusted to include the canceled debt, and could well turn into a taxable gain on the 4797.

[appelman]

I think it's recourse.

The CA anti-deficiency statute only applies to property that is at least partly occupied by the owner. Aside from that, rental loans are almost always recourse.