Deed in lieu of foreclosure

[ACS41]

I'm a bit confused and will appreciate any help I can get.

Individual taxpayer living in Florida has investment property that he stopped making payments on in 2006. Was issued a 1099-A in 2007. To my knowledge, the bank has not sold the property yet.

Box 2: $279,282 Principal balance outstanding

Box 4: $252,000 Box 5: Yes (personally responsible)

The deed in Lieu is for $5,000.

Does the taxpayer need to wait until receiving a 1099-C when the property is sold in 2008, or do they need to recognize income in 2007? If so in 2007, is it $32,882 (279,882-252,000+5,000)?

Thank you.

[Pacun]

Imagine that your client just sold the property for $252,000. Calculate your basis and (since this is an investment property) file gain or loss.