Short Sale - Rental Property

[Thill1856]

My client sold rental property on a short sale in April 2013. He received Form 1099-A but did not receive Form 1099-C. The 1099-A indicates he was personally liable for repayment of debt.

In reporting the sale on Sch D and Form 8949 for 2013, should I calculate the forgiven debt myself (using info from the 1099-A and the short sale closing statement), and use my calculation of this debt forgiven to reduce his basis when calculating gain/loss? If I do so should i complete Form 982 (even though he did not receive a 1099-C)?

Alternatively, should I not report the sale at all in 2013, and wait until client receives a 1099-C (presumably in 2014)? This doesn't seem right to me, since short sale and closing occurred in 2013.

Thanks for your input

[WhiteOleander]

No, you report the 1099A on the 2013 return. The company has more time to decide when the debt is cancelled. It varies by state. It could be 2014 or several years from 2013. The taxpayer will have to deal with the 1099C in the year it is issued.

[Thill1856]

Short Sale - Follow up question

No, you report the 1099A on the 2013 return. The company has more time to decide when the debt is cancelled. It varies by state. It could be 2014 or several years from 2013. The taxpayer will have to deal with the 1099C in the year it is issued.

Thanks - I figured it would need to be reported in 2013. But in calculating the basis of the property sold, do I assume the mortgage debt that remained after the short sale will be forgiven, and use this forgiven debt to reduce the basis, even though taxpayer did not receive a 1099-C?

[WhiteOleander]

No, you cannot do that. The amount of the debt forgiven has not been established. The lender will make that calculation when and if the debt is forgiven. It might be years before the lender gives up trying to collect the debt. What if the t/p won the lottery before it was cancelled!!! Ha Ha. Some of the lenders are more tenacious than others.

You deal with the 1099A for 2013 with only the facts as they are now. This is considered a sale. No forgiveness at this point.