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How do I arrive at the proper treatment of Cancellation of Debt situation that has both Recourse and Non-Recourse Debt on a foreclosed residential rental property?

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Level 1

Client received two 1099-C's and one 1099-A in same year for one property as follows;

  • 1099-A: Bank A
    • Box 1; 6/30/2018            Box 4; 280,000
    • Box 2; 40,000                 Box 5; checked
  • 1099-C: Bank A                
    • Box 1; 6/30/2018           Box 5; checked
    • Box 2; 40,000                Box 6; C
    • Box 3; 0                         Box 7; 280,000
  • 1099-C; Bank B
    • Box 1; 6/30/2018          Box 5; NOT checked
    • Box 2; 16,000                Box 6; D
    • Box 3; 0                        Box 7; 260,000
  • Banks not cooperating but I have a 2018 tax year 1098 on Bank A as follows:
    • Mort interest received: 2,000
    • Outstanding Principle as of 1/1/2018: 43,000
    • Mort Orig Date: 10/30/2006
  • Bank B, I backed into outstanding principle with an estimation by taxpayer as follows; taxpayer estimated 279,000 outstanding in and around foreclosure date. I figure 1099-C is stating forgiven amount above outstanding debt therefore I calculate that outstanding principle is 260,000 plus 16,000 = 276,000
  • Bank B is the first, originated 5/15/2005 and Bank A is second, originated 10/30/2006.
Rental facts:
  • Property purchased 5/1/2005 for 330,000
  • Property converted to 100% service 9/1/2015 using FMV of 210,000 (land 60,000 bldg: 150,000) Note; FMV was lower than Cost which is an issue on disposition because I calulate both a gain and a loss on disposition. 
  • Accum. depreciation: 16,200 - I have rounded ALL amounts for simplicity.
  • Not eligible for any business exclusion because property was rented to cover expenes until client was ready to sell i.e. not for rental activity income and was rented out at market rate. Although there may be a little principle residence exclusion - loans were 100% for property and taken out before 12/31/2017 deadline.

I see that FMV is higher than outstanding debt on bank A which is unusual but I have confirmation that outstanding principle is 43,000 per the 1098 Mort statement. That 1099-C is correct.

Pub 4681 does not discuss the implications of receiving multiple CoD's that are of different character - or at least I didn't find it.

I have worked out a few scenarios but would love some expert opinions on this multi-faceted situation.  

Thanks in advance.

This post below was helpful - user; Allstar Lynn who posted on this link below - Would love your input.... 🙂

https://accountants-community.intuit.com/questions/1118011-1099-c-cancellation-of-debt?jump_to=answe...

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1 Solution

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Level 15

1) Lynn is retired & hasn't posted in quite a while

2) Google DavidFogel CPA & go to his website for *numerous* articles on how to handle COD issues.  He's the guru of COD (IMHO).

Here ya go:

https://fogelcpa.com/tax-articles 

Former Chump... umm.... AllStar.
If a post answers your question, click on *Accept as solution* for future searches

View solution in original post

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1 Reply 1
Highlighted
Level 15

1) Lynn is retired & hasn't posted in quite a while

2) Google DavidFogel CPA & go to his website for *numerous* articles on how to handle COD issues.  He's the guru of COD (IMHO).

Here ya go:

https://fogelcpa.com/tax-articles 

Former Chump... umm.... AllStar.
If a post answers your question, click on *Accept as solution* for future searches

View solution in original post

0 Cheers