Two foreclosed properties; two 1099- As.

[Lucho]

I followed the discussion on Chowdahead post on Feb. 24, 2011 and based on that discussion I am trying to make my conclusion on how to precede with the return for my client.

Taxpayer foreclosed two rental properties in 2010.

Taxpayer received the two 1099-As

Property #1 Box 2 of form shows balance of principal outstanding $124,000

Box 4 FMV of property $132,749;

box 5 was borrower personally liable for repayment of debt? No

Property # 2 Box2 balance of principal outstanding $103,630

box 4 FMV of property $107,582;

box 5 was borrower liable for repayment of debt? YES

Based on these facts I can go ahead and report the sale of property #1 as a sale that happened during 2010 and wait for the second property until the bank notifies this taxpayer of the final outcome which can result in COD income.

Am I right in my reasoning or Am I wrong?

Thank you so much for your help.

Lucho

[Lion EA]

I haven't done any of these this season, so listen to the experienced preparers on this board. But, if you have two Forms 1099-A for two properties, I think you have two sales. The client no longer owns either property, right? He's "sold" them back to the bank? Now, you do not yet have COD.

[Pacun]

Report two sales with its basis. You might have a profit on one and a loss on the other depending on your basis. If you have a gain, you have to recapture depreciation and it will become ordinary income.

[Lucho]

Report two sales with its basis. You might have a profit on one and a loss on the other depending on your basis. If you have a gain, you have to recapture depreciation and it will become ordinary income.

Do we have the option to report only the sale of #1 property this time and wait for #2(which might be in 2011 return) as we know the numbers might be diferent because my client is liable for the debt?

Lucho

[jainen]

>>the numbers might be diferent<<

These numbers will never be different. He has already disposed of the property, so it's a done deal. The amount realized was the lower of FMV or debt paid off; calculate gain/loss from that and his adjusted basis in the normal way. Later, there might be ADDITIONAL numbers if the lender cancels any debt.

[Lucho]

>>the numbers might be diferent<<

These numbers will never be different. He has already disposed of the property, so it's a done deal. The amount realized was the lower of FMV or debt paid off; calculate gain/loss from that and his adjusted basis in the normal way. Later, there might be ADDITIONAL numbers if the lender cancels any debt.

Thank you Jainen.

Lucho