I have a client who did a deed in lieu of forclosure in 2006. She purchased her this home which she lived in as her principal residence for $320,000. She received a 1099-C Cancellation of Debt with an amount of $312,000 in box 2. Amount of canceled debt and an amount of $300,000 in box 7 Fair market value of property.
With all 1099-C's I have seen it all becomes taxable as other income on the front page, but this cannot all be taxable, right? But if I do not reported it the IRS computer will spit it out and they will want to know why it wasnt reported. How do I show it on the return and also show the basis so that it is not all taxable. Do I just leave it off the return and attach a message that explains the situation?
Has anybody had this situation and how are we suppose to handle it? I am sure we will be seeing more and more of this as people's arms begin to run out.
If you know what I should do I would greatly appreciate a response. Thanks to all.
Rocketman
With all 1099-C's I have seen it all becomes taxable as other income on the front page, but this cannot all be taxable, right? But if I do not reported it the IRS computer will spit it out and they will want to know why it wasnt reported. How do I show it on the return and also show the basis so that it is not all taxable. Do I just leave it off the return and attach a message that explains the situation?
Has anybody had this situation and how are we suppose to handle it? I am sure we will be seeing more and more of this as people's arms begin to run out.
If you know what I should do I would greatly appreciate a response. Thanks to all.
Rocketman
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