Booger Posted March 9, 2009 Report Posted March 9, 2009 Client "walked away" from his timeshare investment. Received a 1099-C with $11,810.34 in Box 2 and $13,500 in Box 7. I believe that I can report a "sale" of the timeshare on Schedule D, with the $13,500 (FMV) as the sales price and his initial investment as his cost basis. Since there was no bankruptcy or insolvency involved, I believe that the COD of $11, 810.34 needs to be included in his income. Could someone tell me if my thinking is correct on this issue? Quote
David1980 Posted March 9, 2009 Report Posted March 9, 2009 Does that create a loss? I ask just because claiming losses on timeshare is an issue with IRS, there's quite a few court cases on that issue. Quote
RoyDaleOne Posted March 9, 2009 Report Posted March 9, 2009 Thst does not sound correct to me. However, I will have to post more later, I have to go. Quote
RoyDaleOne Posted March 9, 2009 Report Posted March 9, 2009 Get Pub 4681 do the Table 1-1 Worksheet. No COD Income, see Lines 1, 2 and 3 of worksheet. Quote
LindaB Posted March 9, 2009 Report Posted March 9, 2009 Sales price would be $11,810. From part 2 of table 1-1 in pub. 4681. Agree with RoyDaleOne, no COD income. Quote
Tax Prep by Deb Posted March 9, 2009 Report Posted March 9, 2009 I agree also with RoyalDaleOne and LindaB. The FMV value is more than what was owed, therefore no COD income. However my question is how do you show this on form 982 or do you just ignore the 1099C and make notes for your own file? Deb! Quote
David1980 Posted March 10, 2009 Report Posted March 10, 2009 Get Pub 4681 do the Table 1-1 Worksheet. No COD Income, see Lines 1, 2 and 3 of worksheet. I disagree. On the 1099-C the amount in box 2 should be the difference between the total loan & FMV. So they had a loan outstanding for $11,810.34 + $13,500 = $25,310.34. See detailed example 2 in Pub 4681. In that example they buy a principal residence for $335,000 with $15,000 down payment. They pay down $5,000 of principal. So when they owe $315,000 it is foreclosed and the FMV is $290,000. Only the amount above the FMV is included in box 2, so the 1099-C shows $25,000 of cancelled debt and $290,000 FMV. The $25,000 is not the balance of loan outstanding, but rather the cancelled debt. Quote
RoyDaleOne Posted March 10, 2009 Report Posted March 10, 2009 David I agree with your assessment, naturally, as you would, provided that the 1099 is correct. Very good catch. Quote
Tax Prep by Deb Posted March 10, 2009 Report Posted March 10, 2009 I disagree. On the 1099-C the amount in box 2 should be the difference between the total loan & FMV. So they had a loan outstanding for $11,810.34 + $13,500 = $25,310.34. See detailed example 2 in Pub 4681. In that example they buy a principal residence for $335,000 with $15,000 down payment. They pay down $5,000 of principal. So when they owe $315,000 it is foreclosed and the FMV is $290,000. Only the amount above the FMV is included in box 2, so the 1099-C shows $25,000 of cancelled debt and $290,000 FMV. The $25,000 is not the balance of loan outstanding, but rather the cancelled debt. I Agree, and I should have known better as I have done several of these foreclosure things and have had to make exactly the same adjustments. Deb! Quote
LindaB Posted March 10, 2009 Report Posted March 10, 2009 According to the instructions for 1099-C: Box 2. Amount of Debt Canceled Enter the amount of the canceled debt. See Debt Defined on page 3 and Exceptions on page 3. Do not include any amount the lender receives in satisfaction of the debt by means of a settlement agreement, foreclosure sale, etc. and Debt Defined from page 3: A debt is any amount owed to you including stated principal, stated interest, fees, penalties, administrative costs, and fines. The amount of debt canceled may be all or only part of the total amount owed. However, for a lending transaction, you are required to report only the stated principal. Where in this does it say to make the box 2 amount the difference between total loan and FMV? Quote
RoyDaleOne Posted March 10, 2009 Report Posted March 10, 2009 The lender is deemed to receive the FMV of the property at the foreclosure sale as payment against the debt. The determination of FMV is an area that can be questioned. Who determines FMV, the lender? That is a laugh, could the lender accurately determine FMV when they made the loan? The problem I have is that the owner could have given the seller (mortgagee) a deed in lieu with an agreement that this fully paid the debt and avoided this problem. The taxpayer paid twice what the timeshare is now worth? I personal don't like the outcome in this type of situation. The real entity that should take the hit, if anyone, is the seller of the time share. They are ones that got the real income. The taxpayer just overpaid and financed the deal. I suggest that the amounts on the 1099-C be vertified, as much as possible. Quote
kcjenkins Posted March 10, 2009 Report Posted March 10, 2009 According to the instructions for 1099-C: Box 2. Amount of Debt Canceled Enter the amount of the canceled debt. See Debt Defined on page 3 and Exceptions on page 3. Do not include any amount the lender receives in satisfaction of the debt by means of a settlement agreement, foreclosure sale, etc. and Debt Defined from page 3: A debt is any amount owed to you including stated principal, stated interest, fees, penalties, administrative costs, and fines. The amount of debt canceled may be all or only part of the total amount owed. However, for a lending transaction, you are required to report only the stated principal. Where in this does it say to make the box 2 amount the difference between total loan and FMV? Often the 1099C includes a significant amount of accrued interest and 'fees', so it's always a good idea to challenge that figure when insolvency is not a factor. Quote
LindaB Posted March 10, 2009 Report Posted March 10, 2009 Maybe Booger could find out from the client if his outstanding loan was roughly $11,800 or $25,300, and then let us know here. I know I would appreciate it. Quote
Booger Posted March 10, 2009 Author Report Posted March 10, 2009 LindaB, I'll do that and report back. Quote
zeke Posted March 17, 2009 Report Posted March 17, 2009 LindaB, I'll do that and report back. bump z Quote
Booger Posted March 18, 2009 Author Report Posted March 18, 2009 Haven't talked yet to this client.....what does "bump" mean??? Quote
zeke Posted March 18, 2009 Report Posted March 18, 2009 Haven't talked yet to this client.....what does "bump" mean??? Just a device to keep thread active and move up on list. z Quote
Lion EA Posted March 18, 2009 Report Posted March 18, 2009 bumping this topic up again to the top with a post Quote
Booger Posted April 1, 2009 Author Report Posted April 1, 2009 Client finally got back to me re the timeshare issue. Claims that his initial loan was "about $13,000". Only made a couple of payments on it before he walked away. The $11,800 looks right as far as the amount of debt forgiven. Quote
LindaB Posted April 2, 2009 Report Posted April 2, 2009 Client finally got back to me re the timeshare issue. Claims that his initial loan was "about $13,000". Only made a couple of payments on it before he walked away. The $11,800 looks right as far as the amount of debt forgiven. Thanks for letting us know, Booger. Quote
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