1099-C Amount 60,000.00 Plus What to Do

[Consultant]

At 5 years ending 07/01/2013 (Date of Sale) Client and wife lived in
Condo 26 months at years 1 & 2 plus 2 months then rented for 34 months ending
07/01/2013. Stopped paying mortgage about 8-9 months prior and property was
sold (Code F on 1099-C) on 7/1/2013. Settlement Statement issued. NOW!
Does the debt cancellation pertain to the personal residence exclusion or
to the rental business with a corresponding adjustment to basis?

Form 982 should be completed how?
jk

[Bees Knees]

TTB, page 14-14 says: "For purposes of exclusion from income of qualified principal residence indebtedness, a qualified principal residence has the same definition as is used for the exclusion of gain on the sale of a principal residence."

In other words, if the residence qualifies for the $250,000/$500,000 exclusion for the sale of a principal residence under IRC §121, then that same residence qualifies for the $2 million exclusion for the cancellation of principal residence debt under IRC §108.