Discussion Archives:Cancelled debt, deductible loss & tax attributes

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Discussion Forum Index --> Advanced Tax Questions --> Cancelled debt, deductible loss & tax attributes


Discussion Forum Index --> Tax Questions --> Cancelled debt, deductible loss & tax attributes

CTECRiley (talk|edits) said:

20 March 2009

TP has two 1099A's for a second home he bought for investment. The FMV exceeds the Balance of principal outstanding. He says the debt was discharged in bankruptcy. Since the FMV exceeds the principal there is no cancelled debt to exclude from income, correct? But, his basis is $15k more than the cancelled debt so there should be deductible cap loss, correct? Is it even necessary to file 982?

Riley2 (talk|edits) said:

21 March 2009
No, Form 982 is not required here. A sale of the property must be reported by either the taxpayer or the bankruptcy estate, depending on who received the proceeds of the foreclosure sale.

CTECRiley (talk|edits) said:

21 March 2009
I will ask the TP if he received any proceeds of the sale. If, however, the outstanding debt immediatedly before transfer + any proceeds received are still less than the adjusted basis, there is a deductible loss, correct? That's really the question I have........

Deback (talk|edits) said:

March 21, 2009
The proceeds of the sale is the amount of debt that was cancelled.

Losses on the sale of homes held for personal use are not deductible. You said it was a second home. If this was not a rental home, it sounds like just a second home to me -- and no loss would be deductible on the debt discharged in bankruptcy.

CTECRiley (talk|edits) said:

21 March 2009
I think that's the right answer. The TP's claim that it was 'investment property' does not a deductible loss make. Thanks.

CrowJD (talk|edits) said:

21 March 2009
Well, I'm glad to see that Riley2 finally passed the CTEC, and this should serve as an example to ever one about not giving up.

CTECRiley (talk|edits) said:

21 March 2009
Yes, and keep in mind that it wasn't CTECs who got us into this current financial meltdown. It was attorneys, CPAs and MBAs

heh

)

CrowJD (talk|edits) said:

21 March 2009
You're right about that to some extent, but not this attorney. I keep those crooked mortgage brokers within the gunsights of my legal arsenal at all times. Problem is, most state laws to protect borrowers were pre-empted by federal law. And, as so frequently happened during the last Administration, federal law was not pro-consumer. I'm beginning to wonder if Obamar is going to be any better. He seems to want to Kowtow to the rich also (he just does it in secret).

CTECRiley (talk|edits) said:

21 March 2009
Yes, Roger that. And, not to hijack my own thread, but I was hoping Obama would be much more of a 'pro consumer' populist, something like Teddy Roosevelt. Alas, it does not seem to be so, as he's quite eager to create long term debt to 'solve' short term problems. 'Tis a pity, because I think his 'solution' will destroy what's left of the middle class already decimated after nearly 30 years of 'Reaganomics'. What's needed now is not to artificially resuscitate a thoroughly corrupt and failed economic system. Don't give them a nickel of public money. Instead, let Darwinism prevail and allow the extinctions to occur naturally. If they're 'too big to fail', let the trustbusting begin. They'll be replaced by superior entities and organizations that will serve us better.

Libtax (talk|edits) said:

21 March 2009
CrowJD, I thought Riley2 is a CPA (and so a different person).


Maddog1421 (talk|edits) said:

6 April 2011

I have a client who sold his rental property condo in a short sale. The short sale resulted in a $27,000 loss before any basis reduction. My client received $160,000 in 1099 C's COD. The COD can be exclude due to insolvency $62,500 and the balance because the property qualified as a qualified primary residence i.e. he lived in the property 2 of the last 5 years. I am very confused so any help you can lend would be appreciated. Should the COD excluded reduce the basis in the property? Or, should the $27,000 loss be eliminated as a tax attribute?

DaveFogel (talk|edits) said:

6 April 2011
I recommend that you read my two articles entitled “Tax Aspects of Rental Property Foreclosures and ‘Short Sales’” and “Tax Consequences of Foreclosures and Short Sales — Debunking the Myths”

Maddog1421 (talk|edits) said:

8 April 2011
I have read both articles and now am much better educated. I thank you for bringing your article to my attention. I have redone the return using the QRPBI exclusion instead of the QPRI exclusion. My client will still have a NOL to carry back. I assume I will need to file a 1040X for 2009 to take advantage of this carryback.

Maddog1421 (talk|edits) said:

8 April 2011
I have read both articles and now am much better educated. I thank you for bringing your article to my attention. I have redone the return using the QRPBI exclusion instead of the QPRI exclusion. My client will still have a NOL to carry back. I assume I will need to file a 1040X for 2009 to take advantage of this carryback.
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