Discharge offset against gain

[ILLMAS]

TP went through bankruptcy, TP had a 2 unit house, TP lived in one apartment (sale being reported on Sch D and qualifies for the exclusion), the 2nd floor (sale being reported on 4797), Form is 4797 is showing a gain, filled out Form 982 to exclude from gross income, but I am skipping a step, becuase the gain on 4797 is showing up on the 1040 and a tax is due. Any quick help on this would be greatly appreciated.

Thanks

MAS

[ILLMAS]

I think figured it out myself, I had to increase the basis of the property to the amount of forgiveness to be wash.

[Elrod]

You are absolutely correct, Mas...............Good job.

Remember to include in your charges, Your expertise.

[jainen]

>>I had to increase the basis of the property to the amount of forgiveness to be wash.<<

When canceled debt is excluded from income because of bankruptcy, you must REDUCE the basis of the property. See Form 982 and instructions.

He can not exclude capital gain on Form 4797, even if it occurs in foreclosure due to bankruptcy. In fact, it seems poor planning for his bankruptcy means his gain is now higher.

[Elrod]

Mas, Pub 523...will help you.