1099-C for Rental Property

[whkrueg]

We have a customer who has gotten a 1099-C for a Rental Property. The 1099-C shows the forgiven dept (box 2) at $106,000 and the FMV (box 7) as $0.00. We are not sure how to report this. We have a couple of question.

1.) is the 1099-C incorrect, is the lender required to put a FMV for this property?
2.) we have been told that the box 2 amount has to be included in gross rental income
as this was for a rental property. is this correct?

Any help with this would be appreciated....

Thanks

[Koss]

Cancelled Debt

Was the rental property disposed of?

If so, how? Was it a foreclosure? Or some sort of voluntary surrender?

Or did they somehow refinance the mortgage in a deal where the lender agreed to forgive some accrued interest or something?

The lender may not be required to provide an FMV. But that doesn't mean there was no FMV. Even if the building was destroyed or something, the land should still be worth something.

It doesn't belong on Schedule E. You are probably dealing with something that has to be treated as a sale of the property on Form 4797.

Finally: Cancelled or forgiven debt is not always taxable income. Cancelled debt is not taxable if the taxpayer was insolvent at the time the debt was forgiven, provided that the amount of the insolvency was equal to or greater than the amount of the debt forgiven.

And there's also that new piece of legislation involving mortgage debt forgiveness... which I know nothing about, 'cause I haven't had to deal with one of these yet this year. The new law may be applicable only to the taxpayer's principal residence.

Good luck...

[whkrueg]

1099-C for Rental Property

Burton

Thanks for the input. It really helped. We checked with the customer and it wasn't really a foreclosure. It was a short sale before the house was actually foreclosed on.. So it appears that the canceled debt would be the difference between what they owed and the FMV or short sale price. We are still waiting for them to provide us with the sale price.

However the question still remains as it was a rental property and not their primary residence do we have have to show the canceled debt as income? If so do we include it in "gross rents received" on form 8825? or Miscellaneous Income. Then we treat the short sale as the disposal of rental property.

Thanks again
Wayne

[Black Bart]

There have been

We have a customer who has gotten a 1099-C for a Rental Property. The 1099-C shows the forgiven dept (box 2) at $106,000 and the FMV (box 7) as $0.00. We are not sure how to report this. We have a couple of question.

1.) is the 1099-C incorrect, is the lender required to put a FMV for this property?
2.) we have been told that the box 2 amount has to be included in gross rental income
as this was for a rental property. is this correct?

Any help with this would be appreciated....

Thanks

numerous discussions on this subject here previously which might be helpful. Go to "Search" at the top of the board (just to the left of "Quick Links") and type in "1099-C" -- you'll get a couple of pages of relevant discussion.

[Koss]

1099-c

I would report it as other income on the front page of the 1065 or the 1120S.

But I still think you may want to look at the question of whether the taxpayer was insolvent at the time the debt was cancelled, particularly if the cancelled debt was a significant amount of money.

And this raises the question of whether the entity was insolvent, or whether the partners were insolvent. And whether the partners were individually liable for the debt that was cancelled...

It is a fact that the cancelled debt is not taxable if the taxpayer was insolvent at the time it was cancelled by an amount equal to or greater than the amount of debt cancelled.

I am conceding that I don't know whether insolvency is determined at the entity level, or the individual level, or potentially both. That issue may be bound to the individual facts and circumstances, and the question of individual liability for the debt.

[whkrueg]

1099-c Rental Property

Koss,

Thanks again for the input. We are going to look at the insolvency with this customer. From the information that we have it might be the answer. Unfortunately we don't have enough info from this customer yet. Being we are in California they are carrying a high first mortgage debt and the primary tax payer is self employed from which he is claiming a loss this year.

Black Bart,

Thank, the information we got from the search had some good relevant information and helped point us in the right direction.

Wayne