Discussion:1099-C Short Sale - Cancellation of Debt
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Discussion Forum Index --> Basic Tax Questions --> 1099-C Short Sale - Cancellation of Debt
Discussion Forum Index --> Tax Questions --> 1099-C Short Sale - Cancellation of Debt
| 25 February 2009 | |
| Client elected to do a short sale on personal residence. Received a 1099-C with 65k of canceled debt (mortgage). Home was not in foreclosure; clients were divorcing and simply left the property and bank and clients agreed to do the short sale.
The mortgage forgiveness debt relief act of 2007 allows for the exclusion of this income if the residence qualifies under code section 121. However, they do not meet the 121 exclusion for primary residence becasue they did the short sale 8 days before the 2 year requirement was met! Can I exclude the 65k for any other reason? Unforeseen circumstances? Divorce? | |
RoyDaleOne (talk|edits) said: | 25 February 2009 |
| See: | |
RoyDaleOne (talk|edits) said: | 25 February 2009 |
| I don't see a two year requirement under the debt relief act. Am I missing something? | |
| 25 February 2009 | |
| There is no two-year requirement under Sec. 108(a)(1)(E).
However, the exclusion does not apply to debt unless it is home acquisition indebtedness (which is cancelled last). Therefore, if you have at least $65,000 in debt that is not home acquisition debt, the exclusion does not apply. | |
CTurner555 (talk|edits) said: | 21 April 2009 |
| I understand forgiveness of debt on principal residence can be excluded, and that your primary residence is where you live most of the time. But what if you buy and improve a second residence that you intend to move in to, but the circumstances of the economy changed those plans. Can cancellation of debt income be excluded based on intent? There is roughly $50,000 more cost than the debt on this property and a possible short sale. | |
CTurner555 (talk|edits) said: | 21 April 2009 |
| Not insolvent, not bankrupt, not non-recourse loan. An attorney suggested client set up separate LLC to purchase the second mortgage note at a discount, and let it "die". Which I thought was wrong and not allowed. Client called mortgage company and they actually asked the intent question which prompted the client to ask me if intent mattered with relief of debt. | |
| 23 April 2009 | |
| If this were rental propery, I would recommend looking at Sec. 108(i) for new rules regarding debt acquisitions.
Also, consider making a Qualified Real Property Business Indebtedness election (if this is rental property). | |
