1099-C Boxes 2 and 7

[nanellen]

Taxpayer received a 1099-C with $80,000. in Box 2 and $24,000 in Box 7. The taxpayer later paid off at the closing of the
short sale, an additional $28,000, making the actual debt discharged $52,000. If I use their figures on the Form 982
worksheet and Form 982, can I add the $28,000 to the basis of the rental property sale?

[taxea]

are you sure that the additional 28K gets subtracted from the 80K? His basis is his out of pocket cost for the property plus improvements and possibly other additions.

[nanellen]

1099-C Boxes 2 and 7

Thanks for the reply. Here's how I arrived at the basis. House was converted to rental in 2008, though it was
purchased earlier. Prior tax preparer used $78,000 as basis to be depreciated with no amount for the land.
I added the rest as land value as the total amount paid was $98,036. The property was put up for sale or rent, with an
asking price of$108,00 in 2008. The price was determined by a realtor's market analysis. No appraisal. It didn't
rent until 2010 and the depreciation taken through 2013 was $10163. The total debt when surrendered was $80701.
The box 2 amount is the same, but $28,588 was paid off at closing. The 1099-C instructions say that box 2 should
reflect any amount paid off but it doesn't seem to do that.
The contract sales price is $32,250 with $28,588 paid to the lender. The rest of the $32,000 is closing costs. No
amount went to the taxpayer. When I work through the form, I can exclude $21,136 but have to then deduct
it from the basis. So I have deducted it and then put it back. But it seems that the true facts are
1. They had true COD of $80,701
2. They also had a total loss of $98,036-$10,163 or $87,873.
It does not work out that way using the numbers on the 1099-C The 1099-C does not seem to reflect the
additional payment made to the lender. What am I missing?

[TaxGuyBill]

I assume that box 5 is checked? This is the way I see it:


I would report the full $80,000 on Line 21 as cancellation of debt, but then counteract it by adding $28,000 to Line 21 for the amount of COD that was "repaid". That is reporting the correct and true cancellation of debt ($54,000). Using ProSeries, both numbers show up on Line 21 so the IRS computers can still 'see' the $80,000 on the 1099-C.


The basis for a loss is the lower of FMV at rental conversion and the cost basis (purchase price + improvements). Let's assume that is still $98,000. With the depreciation, that is a basis of $87,873.

Box 7 on the 1099-C should be the 'selling price'. I don't understand why it says $24,000, if the contract price is $32,250 and the net proceeds after selling expenses is $28,558.

Basis of $87,873 and a sales price of $28,558 (or box 7 $24,000) leaves a loss of $59,315 (or $63,873 if using box 7).


I'm not good with Form 982, but I don't see why you would need it. It is an "election" to reduce the basis by the COD. Without Form 982, you are reporting $54,000 in income and a $59,315 loss. If you made the election and Filed Form 982, you would just report $0 income and $5,315 loss ($87,873 basis minus $54,000 excluded COD income, minus the 'selling price' of $28,558 or box 7 $24,000).

I would leave out Form 982, report the $54,000 of income and report the $59,315 loss.


Again, maybe I'm wrong or mixed something up (my brain is still scrambled from tax season), but that is what the situation looks like to me.

[nanellen]

1099-C Boxes 2 and 7

I will take your advice. It makes sense. Thank you and have a Happy Easter. You've certainly helped me a lot and I
appreciate your taking the time to explain it so clearly.
nanellen