1099C - California

[ED SMITH]

Client had home foreclosed and received several 1099-C's from the various lenders involved.
Since it is California, there is no income because the mortgage is non-recourse. However, when this gets reported to the IRS, will it generate a CP2000? And if so, is there any way to handle it on the return? One of the 1099's is for interest only.

[Bees Knees]

Does it qualify for the new home mortgage debt forgiveness exclusion?

[joanmcq]

Just because its CA doesn't mean its nonrecourse. Did they refi? Cash out refi? Only the purchase money debt is nonrecourse. For example, I had a client go to foreclosure. The initial mortgage is nonrecourse. The equity line is recourse. initial mortgage doesn't get a 1099-C. The equity line does, and he has income except that he is insolvent.

[ED SMITH]

Does it qualify for the new home mortgage debt forgiveness exclusion?

Yes it does. However, CA already considers acquisition debt on a principal residence as non-recourse.

The client is insolvent and is filing bankruptcy, so the equity debt should also be discharged. Which brings me to the original question - how to handle this on the return. The answer is form 982 which has provisions - line 1b, Discharge of indebtedness to the extent insolvent - and - line 1e, Discharge of Qualified Principal residence debt.

The real puzzler for this client is that he received two 1099's from the same lender. On the first it had box 2, $175K and box 3 $21K. On the 2nd 1099, both boxes 2 and 3 had the same $21K as on the first one. Any idea what is going on here??? -- or does it not matter because he is insolvent.

[Bees Knees]

I guess I wouldn't try to bother thinking too much over it since you get up to $2 million of debt forgiveness on a principal residence. I would just throw everything on that line of the 982 and be done with it.

[JON]

Author TaxBook

is writing up how to use the 982. Maybe Bees can get it posted here.

[ED SMITH]

Thanks to everyone.

[joanmcq]

The question is 'is it accquisition debt?' My first take on the two loans is that he had an 80/20 or some such to avoid mortgage insurance. The 80 is a conventional loan, and the 20 is an equity line. The instruction regarding box 3 refers to pub 525 to determine if the 'interest included in box 2' is taxable.