Partnerships receive Form 1099-C(s) too. The tax reporting rules make handling it on Form 1065 straight forward. (910) 399-2705.
Partnerships incur cancelled debt: Form 1099-C, Cancellation of Debt, isn’t just for individuals. Dealing with cancelled debt on Form 1065, U.S. Return of Partnership Income, isn’t difficult. Essentially Box 2 of Form 1099-C flows into the Partner’s Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., which then flows automatically to Line 21 of Form 1040 as taxable income. The main wrinkle is how much cancelled debt goes to each Partner. Partnerships have good flexibility with allocating who gets what. Sometimes that helps.
Form 1099-C, Cancellation of Debt, and Form 982, Reduction of Tax Attributes?
The Partner then deals with the amount of cancelled debt on Schedule K-1 just as though a Form 1099-C got issued to them personally. Cancelled debt escapes tax on the Partnership’s Form 1065. But then you’re in the personal side of cancelled debt. We get a lot of contact from other tax preparers. You’ll see CPA comments on some posts and even a testimonial. So my perception is that lots of Form 982 confusion exists.
Partly because of the Recession, most Partnership cancelled debt is from rental property short sales, rental property foreclosures, etc. Here there’s three main issue on Form 1065, U.S. Return of Partnership Income:
- The last Form 8825, Rental Real Estate Income and Expenses of a Partnership or an S Corporation.
- The “sale” of the rental real estate and subsequent gain or loss to the Partnership. Reported on Form 4797.
- Partnership cancelled debt.
Our virtual office means distance isn’t a factor. If you don’t have a local CPA experienced in debt cancellation tax reporting, and you like what you read, consider calling us for a free consult. (910) 399-2705.
Hi, He’s a different angle on Partnership debt forgiveness. I bought into a partnership with a 70K loan from the Professional Corp to purchase the shares. Half way through payment of the loan I decided to walk away from the partnership for various reasons. I gave up the shares I had received for free and the partnership forgave the rest of the loan. Do they need to give me a 1099-C for the 35K of the loan forgiven? Are taxes owed on the forgiven portion? I have had two CPA give contradictory information so far and would like a tie breaker.
Cheers,
Partnership Breakup
Hi John. It depends on what accounting basis the Partnership used. Accrual - cancelled debt and taxes on the $35K. Cash: no consequences except what’s above. Hope that helped.
would love to know on a partnership level, when a bank issues a 1099C for a debt that was cancelled for Real property, rental business and the FMV of assets is below the debt. i.e
on the balance sheet BV of asset is 3,000,000 loan value 2,700,000 refi with another lender and the first lender 1099c of 900,000. the FMV based on bank appraisal was 1,700,000.
I am inclined to prepare the 982 with real property indebtedness exclusion. and no basis adjustment to property.
What is your thoughts I greatly appreciate it.
thanks
nk
Hi Noelle, I can’t address the basis question but your use of Form 982 seems correct.