Was client's personal residence and because of short of funds rented it out in desperation and moved in with somebody. Lost the property anyway but can client avoid the cancellation debt reporting seeing it was her personal residence except for the last year?
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Principal residence-debt exclusion
1. The statute and related regulations indicate that determination of principal residence is (surprise surprise) based on facts and circumstances.
2. Keep in mind that the qualified principal residence exclusion applies only to qualified principal residence debt discharged on account of a decline in the value of the residence or the financial condition of the taxpayer.
3. Your scenario doesn't specify dates/time of principal residence use, time of rental, etc.
4. You may want to also consider if the taxpayer was insolvent on the date of debt cancellation.
5. Code Section 108.
6. Keep in mind the principal residence mortgage debt discharged to be exempt from tax had to be qualified acquisition debt, not "home equity loan" debt.Friends double; family triple. Don't buy an audit for yourself. If someone has to go to jail make sure it is the client. Remember it is only taxes, nothing important.
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