1099c

[JG EA]

Client will not be able to keep 2nd home. He is inclined to let the bank take it back.

I advised to try and sell and get a little out of it and preserve his credit. If that is not possible go to the bank and make an arrangement to give back to preserve his credit.

If it does go back to the bank, he gets no relief from cancellation of debt because it is not his primary residence. He will not be insolvent. His mortgage is recourse debt.

So, check me out here. This is what I think I know from reading the tax book. He treats it as a sale on D. Sale price is debt forgiven and basis is the FMV on the 1099C. This is where I am unsure. Or is the basis just what he's paid so far plus improvements?

[Roland Slugg]

FMV is not basis

Dear JG

The FMV appearing in box 7 is not relevant. The T/P's basis is figured in the usual way.

[JG EA]

Thank you!

Excuse me for asking the obvious here.

The usual way is purchase price + improvements because the Debt Forgiveness ("sale price") is like getting the money and paying off the balance due?

[Davc]

The sales price for schedule D is the FMV. Basis is figured as usual. If the debt is forgiven and was recourse debt, any amount over FMV is COD income on line 21.Note: if personal use property any Schedule D loss is disallowed,