I have a client with a 1099-C on rental property in 2018. It was a short sale. I entered the 1099-C and completed the Canceled Debt Worksheet. I completed Part X, Exclusion for Qualified Real Property Business Debt to exclude the gain from the forgiven debt since the debt exceeded the FMV. However, I also did a complete disposition on Sch E to recapture depreciation, and release passive activity loss carryovers, etc. As a result, my Form 4797, Sales of Business Property shows the property 2x in Part I (different losses though)...one coming from the Canceled Debt Worksheet and one from the Asset Entry Worksheet. Is this correct? I don't want the IRS to say tp is double-dipping. I'm thinking she's entitled to exclude the gain from the forgiven debt as well as claim her losses on the disposition of the property...two different things and that's why it's appearing 2x? Can anyone offer an opinion?
Comment