Foreclosure and 1099-MISC other income Bx. 3

[Lucho]

Client foreclosed on a second personal home last year, bank sent him a 1099-MISC with an amount of $7000+ listed in box 3 as miscellaneous income(client actually received that money as the keys refund as stated by bank notification). According to 1099-A, client’s basis in the house was higher than the balance of principal outstanding debt and also higher than the FMV of property.

If this is a non-deductible loss, how would you characterize that $7000+ MISC income?...1040 Line 21 other income , capital gain or non taxable because the loss.

I would appreciate any help.

Thank you,

Lucho.

[jainen]

>>client actually received that money as the keys refund as stated by bank notification<<

Don't be misled by the polite term "refund." It kind of sounds like a cleaning deposit, but the bank paid extra for the homeowner to vacate quickly and quietly. Taxable on Line 21; not relevant to the questions of COD and capital gain.