Discussion Archives:Foreclosure and Form 1099-C

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Discussion Forum Index --> Advanced Tax Questions --> Foreclosure and Form 1099-C

Discussion Forum Index --> Tax Questions --> Foreclosure and Form 1099-C

Taxaddict1 (talk|edits) said:

3 June 2010
Taxpayer received two 2009 Form 1099-C due to foreclosure. The total amount is about $300,000. The property was his primary residence. If he has never refinanced, is it safe to conclude that the full $300,000 can be excluded as income because of the "Qualified Principal Residence Indebtedness" rule? Is there anything that we have to look for in order to make sure that none of the $300,000 has to be reported as income?

CATaxAtty (talk|edits) said:

3 June 2010
Yes, for instance, California does not conform to the federal rule. At least, the last time I checked. Other states might do similarly.

CATaxAtty (talk|edits) said:

3 June 2010
Well look at that, they did pass that bill. Haven't really been paying attention. Anyway, nevermind, CA is off the list.


Tkelly911 (talk|edits) said:

3 June 2010
You may have non-recourse debt, making these laws a moot point. Use the yellow box and search for nonrecourse or the equivalent. Or better yet, just search for "Dave Fogel" posts and read them all. That is where I have learned about the entire spectrum of cancelled debt issues.

DaveFogel (talk|edits) said:

3 June 2010
I agree with Tkelly911 that the debt may be nonrecourse. If the loans were never refinanced and were the original loans that were obtained to purchase the property, and if the property was owner-occupied at the time of purchase, then section 580b of the California Code of Civil Procedure prohibits the lender from seeking a deficiency judgment, which means that the loans were nonrecourse.

The principal amount of the loans at the time of foreclosure would be the "amount realized" in computing gain or loss on the foreclosure, and there would be no cancellation of debt (COD) income. No COD income, no need to consider an exclusion under IRC ยง108.

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