Tax

[eileensue]

I need help with this and hope someone out there can guide me. My client owned a condo. The basis at time of cancellation of debt was $154,386. It was used

for real estate rental. She received a 1099-A from the lender as she abandoned the property. They showed a balance of principal outstanding as $141,520 and

the Fair Market Value of the property as $148,876. I know she qualifies for a 982 Form. What goes on the 4797? Does the Adjusted Basis on the 497 include

the forgiveness of debt amount of $141,520. I do not seem to be able to figure the steps needed to get this right. The original purchase price of the

property was $176,900 and it was purchased on March 1, 2006. Also, there will be passive losses.

Thanks,

Eileen

[jasdlm]

DISCLAIMER: I have never actually worked through one of these on a return . . . my clients have been fortunate. However, here is my understanding. Hopefully others will correct/supplement what I am saying.

There are two aspects to this situation.

First is the amount of debt cancellation. Subtract the Fair Market Value (as indicated on the form) from the amount of debt. If the debt exceeds FMV, she would report income from cancellation of debt on line 21 as other income if a 1099-C has been issued. However, I think you can wait to see if a 1099-C is issued before worrying about the 982. (i.e. 1099-A, in my understanding, is not equal to debt cancellation, so income does not need to be recognized for debt relief.) Ooops . . . in reading the facts again, the Fair Market Value is larger, so no income in this arena anyway.

The second aspect is the deemed sale of the house. Subtract the adjusted basis from the smaller of the FMV or cancelled debt, which in your case is the cancelled debt. This is reported on Form 4797.

Hope this is helpful. If I'm not correct, someone will jump on it!

[Lucho]

I need help with this and hope someone out there can guide me. My client owned a condo. The basis at time of cancellation of debt was $154,386. It was used

for real estate rental. She received a 1099-A from the lender as she abandoned the property. They showed a balance of principal outstanding as $141,520 and

the Fair Market Value of the property as $148,876. I know she qualifies for a 982 Form. What goes on the 4797? Does the Adjusted Basis on the 497 include

the forgiveness of debt amount of $141,520. I do not seem to be able to figure the steps needed to get this right. The original purchase price of the

property was $176,900 and it was purchased on March 1, 2006. Also, there will be passive losses.

Thanks,

Eileen

I am sure you have to wait until a 1099-C is issued which might happen during 2010 and report the transaction until next year.

Lucho

[RoyDaleOne]

What cancellation of debt?

It is either;

1. Section 121 if the taxpayer's principal residence,

2. Loss on 4797 if rental property,

3. Loss on Schedule D if investment,

4. Nondeductible loss if personal asset.

Pick one.