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We short sold our home in 2014 and were concerned with the repercussions from the cancelled debt. We did a lot of research on the internet and were able to find Gary.  He provided a free consultation and let us know that we should be do.  Due to his expertise, we went from thinking that we would owe a significant amount of money to actually receiving a nice refund.

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Rental Property CPA explains Cancelled Debt on Schedule E | Form 1099-C instructions | Schedule E instructions | rental property foreclosures and short sales | IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness and Form 1099-C Cancellation of debt

Form 1099-C CPA, Form 982 CPA. Cancelled debt CPA. Form 982 instructions. Form 1099-C instructions.

I think every rental property CPA became a Form 1099-C CPA during the recession. If you don’t have a local rental property CPA well versed in rental property cancelled debt, consider calling me for free consult at (910) 399-2705.

Hi, I’m a rental property CPA with a virtual office to serve long distance clients. Most rental property CPAs became Form 1099-C CPAs during the recession. Why? The sheer number of Form 1099-C(s) issued is staggering. Rental property foreclosures still ripple into 2016. My extended family owns rental property, so I keep up with current issues on rental property. I’ve worked for real estate developers and construction firms. I have cancelled debt clients who are CPAs and tax attorneys. There’s even a CPA testimonial on this website. Unfortunately the Recession gave me lots of experience with rental property cancelled debt. When I was a brick and mortar CPA we never saw a single rental property cancelled debt case. And if we had the opportunity, I think we’d have passed because the rental property foreclosure and cancelled debt tax reporting requirements involve a steep learning curve. This post answers most questions I get on rental property foreclosures and short sales. It’s not comprehensive. Cancelled Debt from rental property foreclosure or short sale affects:

  • Schedule E, Supplemental Income and Loss.
    • The Schedule E instructions aren’t so great.
    • Form 8825 is basically the same as Schedule E and the Form 8825 instructions are an easier read.
  • Form 8825 Rental Real Estate Income and Expenses of a Partnership or an S Corporation.
    • While I handle S Corporation cancelled debt and Partnership cancelled debt, this post is on personal cancelled debt.
  • Form 1099-C, Cancellation of Debt. The Form 1099-C instructions are for the lenders and bankers.
  • Form 1099-A, Acquisition or Abandonment of Secured Property. The Form 1099-A instructions are for the bankers too.
  • IRS tax Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment).
    • Want to know if you have a good rental property CPA well versed in cancelled debt? He’ll discuss the future tax implications of using Form 982.
    • I suggest doing some internet research before reading the Form 982 instructions. Just to pickup some of jargon and basic tax reporting requirements.
  • IRS tax Form 4797, Sales of Business Property.
    • Don’t default to your tax software’s number here.
    • Read the Form 4797 instructions.
    • Pull out the purchase HUD. Why? Many times the buyer’s settlement costs aren’t included in the rental property’s basis so you’ll pay an extra $1000 +/- in taxes.
  • Form 1099-S, Proceeds From Real Estate Transactions.
  • Form 8582.
    • You can claim prior disallowed losses in the rental property’s year of disposal. The Schedule E instructions are a bit vague, but prior disallowed lasses flow into Schedule E from the carry forward amount on Form 8582, and then to Form 1040.
    • Depreciation for Form 4797 and prior disallowed losses on Form 8582 sometimes don’t transfer over when you change Form 1099-C CPAs or tax software.
    • Look at your old returns to see if that’s the case. That can be thousand of dollars in tax savings.
    • Don’t even try the Form 8582 instructions. They’re so complex I use a subscription database that makes the Form 8582 instructions easier to understand. Go figure.

“While Form 982 changed in 2015, and then changed again, rental property and Form 1099-C CPAs can still use the insolvency and qualified business indebtedness exclusions of Form 982 to keep the Form 1099-C income from becoming taxable income.” – Gary Bode, Form 1099-C CPA and rental property cancelled debt tax accountant

It’s not just homeowners that were hit by the economy, foreclosures and short caught landlords, too. Here’s the typical flow of events.

  • You can’t pay the rental property mortgage.
  • You’re forced into a rental property short sale or foreclosure. I’m not dealing with a re-finance in this post, sorry. But the two issues overlap.
  • The bank takes possession of the rental property. This triggers a Form 1099-A. But sometimes, if they simultaneously cancel the debt, the bank just sends Form 1099-C. We’ve seen a few instances where the bank sends Form 1099-A and Form 1099-C in a single document.
    • Any Form 1099-C CPA will say Form 1099-C(s) are notorious for being late.
    • Form 1099-A itself doesn’t incur any cancelled debt income.
  • Rental property foreclosure is a “sale” to the IRS. Both foreclosures and short sales require calculation of gain or loss on the sale through IRS tax Form 4797, Sales of Business Property. Be patient with the Form 4797 instructions.
  • The bank writes off the rental property mortgage balance.
  • The amount your bank “forgives” is cancelled debt.
  • The bank reports the cancelled debt to both you and the IRS via Form 1099-C, Cancellation of Debt.
    • Again it’s common for the 1099-A to arrive first, generating a large tax refund.
    • But Form 1099-C will be issued if the bank forgives the mortgage debt.
    • Form 1099-C doesn’t always mean the bank won’t try to collect.
    • It’s common for banks to not issue a Form 1099-A and go straight to the Form 1099-C.
  • The amount on Form 1099-C becomes rental income on Schedule E or Form 8825.
  • Rental property profit or loss from Schedule E flows into Line 17 of Form 1040.
  • Use Form 982 to exclude some or all of the cancelled debt from taxable income.
  • Present your exclusion on Line 21 of Form 1040.

“Don’t pay tax on rental property foreclosures or short sales until you exhaust every possibility to exclude cancelled from becoming taxable rent income through IRS tax Form 982.”
– Gary Bode, rental property CPA and cancelled debt specialist

Form 1099-S

Form 1099-S may seem redundant if you’ve received Form 1099-A, but I’ve seen cases where the IRS asks about it in a correspondence audit. Best to include it on the tax return.

Ask your Rental Property CPA

Cancelled debt rules and implications on Schedule E are complex. You can’t reasonably rely on this website for tax return preparation advice alone. There are plenty of IRS wrinkles. Your specific fact pattern must be considered before implementing any strategy. Talk to your local Form 1099-C CPA. Remember Form 982 can have future tax consequences.

Form 982 tax positioning

Sometimes in rental property cancelled debt cases, the Client can control, somewhat, the cancelled debt triggering event. If so, there are legitimate canceled debt tax position strategies that may help lower the tax bill.

Form 1099-C CPAs generally use more explanations and supplemental documentation

It’s a judgment call. But most red flags can be explained away.

I’m a rental property CPA who offers a free phone consult. If your area doesn’t have a rental property CPA who’s well versed in Form 1099-C tax consequences, please consider using us. The virtual office allows us to offer excellent client service wherever you are (910) 399-2705.

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58 comments to Rental Property CPA explains Cancelled Debt on Schedule E | Form 1099-C instructions | Schedule E instructions | rental property foreclosures and short sales | IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness and Form 1099-C Cancellation of debt

  • Kris Magat

    I have a question regarding cancelled debt on rental property. I still own the rental property and continue to pay the mortgage payments. The lender has decided in 2012 to cancel the 2nd mortgage ($67k) and part of the 1st mortgage ($20k) that were left unpaid when I modified the payments some two years ago. I received 1099C in 2012 totaling $87k and will be filing to exclude the debt cancellation for reason of insolvency. I have already determined that I qualify using the insolvency worksheet.

    The cost of purchase of the rental property is $686k and the existing mortgages prior to the debt cancellation is in excess of $720k. My question is, do I have to expense the amount of debt cancellation from the cost basis even if the actual cost of the property is more than maximum cost basis allowed by IRS of $500k? I hope you understand my question…

    Thanks so much!
    -Kris

  • Help…
    Sale of rental property
    Hud-1 shows $131,000 with bank payoff of $120,273 and closing expenses.
    No proceeds went to seller

    1099-C issued for a total of $103,073.38 (2 1099-C, one to taxpayer one to spouse for 1/2 of the total amount shown above).

    House purchased in January, 2005 for $191,321. Depreciation of $31,903 taken up to date of sell. Short sell in August, 2012.

    I am not sure of how to handle the tax return.

    Thanks, Jim

    • We handle our client through Pro Series software, Jim. I don’t know what your firm uses. Sounds like the cancelled debt is a “gimme.” But it affects the gain or loss of the rental property itself, via the tax attributes section of Form 982. I usually a spreasheet to calculate that, with the recapture of depreciation, unclaimed prior rental losses, tax attributes etc etc. Just so I know what the tax program should show. Hope that helps you and your client.

  • notice date irs

    Your Rental Property CPA explains Cancelled Debt on Schedule E … is very good! Thanks!

  • RESIDENTIAL RENTAL Short Sale Foreclosure TOTALS
    Sales expenses 10,209 3,000 13,209
    Cost less depreciation 174,347 79,613 253,960
    Adjusted Basis 184,556 82,613 267,169
    SALES PRICE or FMV (84,000) (36,000) (120,000)
    GAIN (LOSS) on short sale 100,556 46,613 147,169

    Debt before Short Sale 162,000 66,318 228,318
    Net proceeds from sale (75,791) – (75,791)
    DEBT Forgiven 86,209 C 66,318 A 152,527

    RENTAL loss – Passive
    Current year passive rental Income (Loss) (5,829) (3,297) (9,126)
    Carryover losses (67,710) (32,407) 100,117)
    Total Rental Loss B4 sale (73,539) (35,704) 109,243)

    I excluded from Debt forgiven (84,000 – 162,000)? 78,000 30,318 108,318
    I excluded from Debt forgiven (66,318 – 36,000)?

    What should rental real estate loss be on Sch E line 22?
    What should my canceled debt income be?
    What should my Gain (Loss) be on Form 4797?

    Do I have to exclude if loss is greater than Cancelled debt
    What affect is that on the passive loss carryover?

  • Gary, I completed a short sale through Bank Of America on a rental condo in San Diego on 5/24/13. I received a 1099-C: Box 1 May 24, 2013 Box 2 $79,272.20 Box 3 0.00 Box 4 Mortgage Loan Box 5 Box Unchecked Box 6 Code G Box 7 Blank. I also received 1099-S: Box 1 5/24/13 Box 2 $327,900 Box 3 Address of Condo Box 4 Box Unchecked Box 5 $318.92. As part of the SS Agreement, I received a HIN Incentive for $5,000 issued by Heritage Escrow Co. not Bank Of America and a 1099-Misc for this amount. The $5,000 was inclusive of the amount discharged. The condo was deeded in I and my wife’s name … not an LLC, LP etc. The fact that Box 5 of the 1099- C is unchecked makes it appear that its a non-recourse loan and I wouldn’t need to claim the forgiven debt but your blog say its considerd as “rental income” in completing the disposition on Sched E and the 4797. Can you please clarify? Also the $5,000 Hin Incentive, is it treated as “other income” on front of 1040 or do I also treat it as rent like the 1099-C?

  • David Wade

    I sold a rental house to my daughter in 2008. Purchase price was $100K and I owner financed $100K. So she paid no down payment. She has paid the mortgage until now, 2015. Now she wants to give the house back to me. Since I am the owner of the loan, I can foreclose, modify, short sale, allow an assumption or whatever with the loan. My son wants to buy the house but the FMV of the property is now $70K.
    I know that depreciation has occurred to effect her basis ( assume depreciation is $20K ). It appears that I will have to file 1099C.

    Question is, how can I take the property back with the least amount of forgiven debt reported for my daughter?

    If she has a capital loss, then so be it.

    I would like to sell the house to my son for FMV and I will be the lender by owner financing.

    I cannot find anyone who can give me clear answers to my questions.

    Thanks, David Wade

  • Jason

    hi gary, I had to short sell my FL rental property in april 2014. I live in Indiana. it wasn’t rented at all in 2014. I am using turbotax premier again this year. since not rented in 2014 I deleted rental property so depreciation would deduct. then proceeded to the “business items\Sale of business property” section, selected “sales of business or rental property” option and then finally entered sale info (dates, sales price, basis, depreciation taken the 5 years, and 1099-S info). all good here so far. finally, I proceeded to “less common income\miscellaneous income, 1099-A, 1099-C” and select “cancellation of debt (form 1099-c)…”. I answered the question “another type of debt for second home” and that “i received a 1099C for non-personal debt…”. then when I was excepting to enter info from 1099-C I just get an “about your cancelled debt and the irs has strict… to determine which apply to you consult tax pro or irs pubs 4681 or 544”. then process ends.

    I don’t know what else to do as thought I’d be able to do this with turbotax. I selected forms and entered “982” and its there but don’t understand why not walking through process.

    any help/comment would be appreciated. thank you again

  • Joan

    hi Gary,

    Here is my complex situation which I have spent all day researching and too many information to go through. My sister received a 1099C afer a short sale on her rental property which was not primary residence. Box 2 is approx 415k and box 7 approx 125k. For the short sale, the contract price was 120k, purchaser which does investment purchase got wire transfer funds of 110k and settlement cost approx 16k, property cost was either 400 or 500k. Has been previously rented and reported on Sch E on Form 1040. There were depreciation and disallowed losses. How should this be handled. Should it be reported as other income on line 21 or as rental income in Schedule E. Should I then use form 4797 to calculate the disposition of property. Also a 1098 mortgage interest statement was received for apprx 56k with real estate taxes of $690. Property was short sale in July 2013, so the tax was not filed and now been dealt with.

    Thanks in advance

  • Brandy

    HI,
    I have a question about a rental property that was sold at a loss. I owned the property with my ex-husband. Thru the years we have been carrying forward the depreciation. We continued to use the same CPA through the years to have consistency with taxes. We both make over 120K, so have not been able to use the depreciation until the property sold. The property was purchased in 2002 for 332K, and sold short in 2014 for 120K. My CPA told me that the 1099-C would essentially increase my taxable income by half (other half to my ex) the amount of the forgiven debt, but that the loss and the depreciation that has been carried forward would help off set the increase. Does this sound right? Thanks.

    • Doesn’t sound right to me Brandy. First even if you pay your half you’re still responsible for his half. We seldom see any tax consequences from rental property cancelled debt since you can use insolvency the qualified business debt.

  • JCOOKCPA

    My client sold a rental house for $1,000,000 on installment over 10 years ago. Currently, the remaining debt on the property is $700,000, and the FMV of the property is $600,000. Can they sell it back to me for $750,000, or does it have to be the $600,00? What is the tax consequence on the purchase?

  • GMS

    here is my issue…. bought my house in 2006 at the peak for $585k. currently MV is around $380-$420k. I originally had a 1st and 2nd both purchase loans. Non-recourse. I had an adjustable rate mortgage and eventually couldn’t afford the payment. was delinquent and the lender worked with me to stop foreclosure process and processed a loan modification only on the 1st mortgage into a fixed rate mortgage. But nothing was done with the principal amount of the loan. In actuality they tagged on another $11k to the principal for processing the modification. In the end the 2nd mortgage remained as is and I was never delinquent on that loan. Both of these new loans were sold shortly afterward and I had another child, my father died and my mother moved in with us. Forcing us to seek a larger home. We moved into a rental property and my house was up for rent for a solid 11 months before it finally rented. Have had renters for almost 2 years now and just recently were able to purchase another home large enough for all of us.

    Now to the real inquiry stuff……. I come out of pocket $891 every month on top of the rent I receive for the home. Plus the property insurance and taxes every year which is NOT figured in that $891.

    Recently, we have determined rats have infested the attic and crawl space, I’ve been paying for traps and pest control to come out every other day and just received the quote to have exclusion and all repairs and treatment of the insulation disinfection and rodent repellent. The total is going to be $7,960!!! I don’t have this money and the problem will NEVER actually go away as the house currently shares a property line with a school where two disgusting dumpsters sit and continually attract rats. Multiple homes on our street are infested, get treated and then are re-infested year after year.

    My tenants are moving and I can’t rent it out with rat infestation, I can’t afford the repairs as I am so upside down on the loan as it is. I am afraid my only option at this point is eventually to walk away. I was hoping not to have to do this as I have tried so hard over the last few years to hold out till I could sell. I just don’t think that is likely to happen.

    The current 1st is a conventional loan, No Frannie or Freedie so they won’t work with me to try to refinance. I already tried that. basically they hung up in my face and laughed while they did it. This loan is a non-recourse loan and my 2nd is still the original purchase loan 2nd not a refinanced 2nd or HELOC.

    I am trying to determine what my tax consequences will be if I let it foreclose and if I will be liable for any payments i.e. sewer, 1st loan, 2nd loan, taxes etc. once the foreclosure is completed. Can they put a lien on my current house that we purchased or any of my personal belongings/ garnish my wages?

    Thanks for your help. I am happy to retain a tax professional for this purpose/ case but I don’t even know where to find the right tax team for this particular situation.

    Thank you!

  • karen

    Rental property purchased in 1995. Total cost + improvements is 78000. Depreciation taken is 43000. So adjusted basis 35000. Mortgage company completely forgave mortgage of $88,000 (they paid property taxes over 3 years that added to the balance of the mortgage). FMV of property is $99,000 and is still owned by borrower. This was not a short sale, or foreclosure, just out and out cancellation of debt. Mortgage was secured, but loan was recourse per the 1099-C stating client was personally liable (I think all rental loans are) 1099-C issued for the $88000

    So Proseries has a nice worksheet. But it is based on the asset being “sold”…..calculates 53000 of capital gain……can’t be right. What do I have wrong?? Thanks!

    • Well Karen I generally use the Schedule E worksheet asset entry to calculate gain. You check the completely disposed in a taxable transaction The cancelled debt worksheet can render a different figure for insolvency. Hope that helps.

  • Scott L Pritchett

    Hi, Gary… Great info.

    We have a rental home in SC. Owe $245K on it. Assessed at $425K. Call the FMV $350K.

    Taxes tripled due to SC law about non-owner occupied residences. Can’t pay 4.1K mortgage now per month– lost tenant.

    House is listed for sale, but if we do a deed in lieu, what would be the rough tax consequences?

  • Warren Henry

    Hi Gary

    Suppose you have a property that is multiple units(3)you rent 2 and you occupy 1. How do you handle the cancellation of debt. Do you just work of the 2/3 of the cancellation of debt amount?

  • Nan

    Hi Gary,
    I purchased a primary residence near my job in Wilmington, NC in October 1992. I lived in that townhouse and worked at the same job until I had to retire on April 1, 2011. On October 5, 2009, I had to go to WV and care for my mother who was terminally ill. We did not expect her to live even a year; however, we were thrilled that she was with us until January 4, 2012. When I left Wilmington, I thought I was doing so temporarily, and planned to return to my life in Wilmington-my home, my job, etc. upon my mom’s passing. As I said before, I had to retire as I exhausted all of my leave April 1, 2011 and had to make a decision. Thus, still expecting to return to Wilmington, I retired, rented my townhouse in Wilmington since I couldn’t carry it on a retirement pension alone, and, thus, didn’t think I could consider my home in Wilmington my primary residence. I became a resident of WV at that time and continued to live with my mom until her passing. At that point, I still had renters under contract in my home in Wilmington until July 2012. Not knowing what to do, my only daughter living in Atlanta, and not wanting her to have to leave her life to care for me in the future as I had done with my mom, I thought it would be easier for me to move to the Atlanta area and see how that would work. Did that home stop being my primary residence on April 1, 2011 since it was available for rent and was on the market for sale until it was sold on January 23, 2015. It is my understanding that you have to live in a residence for 2 of the last 5 years before the sale to consider it a primary residence. That would put the 5-year look-back period at January 23, 2010. When I moved to the Atlanta area, I became a resident of GA; however, I rented a house from March 2012-June 2013. I did not purchase a primary residence in Newnan until July 2013, the residence in which I currently reside. Is there any way I can consider the year I rented while in GA and still owned my home in NC, the NC property my primary residence since I had not decided I was going to stay in Newnan? Is there anything I can do to consider this property as my primary residence for 2 of the 5 years before the sale and not rental property? If I have to consider it as rental property I will have significant tax implications for the IRS, State of GA and, I am told, possible the State of NC and a 25% depreciation tax. HELP!!! Thanks, Nan

  • Nan

    Gary, I forgot to tell you a most important piece of information. I had to short-sale the home and I took out a mortgage recovery loan for $20,000 with the lender who had the loan. I am paying on that now. Is the interest on that loan tax-deductible? Is the appraisal on the home to get the mortgage recovery loan, tax deductible? I would appreciate any assistance you can provide. It just seems that, in trying to do the right thing, it very well may not be the best thing for me. Many thanks! Nan

  • Tammy Mears

    We had a rental property that was foreclosed on in 2015. Just got the 1099-c. Do I report the cancelled debt as ordinary income on the 1040 and then show the rental property (schedule E) as being sold for $0. This would give me a loss to offset the cancelled debt income?

  • Norm

    Hi Gary,

    I own a rental that I’m still paying on and is currently rented. I have a judgment on a former tenant that has been ignored. How do I file a 1099-C on them and the judgment? I have a SSN but no current address. Once I file the 1099-C, can I write it off my taxes as a rental expense?

    • You can issue a Form 1099-C. I’ve seen many cases where it’s used for vengeance. Use th last known address. But it doesn’t halp you tax wise unless your business is on an accrual accounting basis.

  • Tonya Love

    I wish I could find a good webinar on this subject! Your site is very helpful though. I work in a small CPA firm-research staff 0. A client received the 1099-C which lists the fmv of a rental property. Are we to consider that fmv the sales price and “dispose” of it? Something seems missing. We were also picking up the COD income. I guess I’m looking for a flowchart of sorts of how to treat this “income” Thank you in advance for anything.

  • Kay

    Hi Gary,
    Great article. I received a shared appreciation mortgage offer that includes 100,000 forgiveness after 3 years. I’m terrified of what the ramifications will be tax-wise since it’s a rental home vs. Owner occupied. Are there tax laws that will help offset this. I’m worried I’ll be stuck with a 20,000 tax bill.

    • Ouch Kay. You’re right. No tax laws prevent it. But there are tax strategy issues that might soften the blow.

      • Kay

        Gary, do we just call your office to schedule a consultantion? I have to accept the offer this week and I’m worried about the tax issue and would like clarification before accepting/declining.

        • I’m in 11-6 PM ET tomorrow. If I’m not already on the phone I’ll answer. If not I’ll return the call by day’s end.

          • Kerry

            Thanks, Gary. Have you ever heard of reporting the income from the 1099-C over a period of years? The mortgage company just said a tax professional could possible break up cancelled debt over 3 years since technically the debt is being forgiven over a 3 year period. Doesn’t this just mean setting up a plan with IRS? I can’t imagine the IRS going for me reporting a different income that’s on the 1099-C.

          • Yes Kerry. But you can claim it all on 2015 if it’s your primary home. If it’s for your primary home the cancelled debt might not be automatic for 2016. I’d be happy to do that return.

  • Kevin

    Rental Property Second Mortgage forgiveness 1099-C. Reporting on Sch SE for 42k and treating the rest of rental expenses as normal. Leaves me with a 30k net gain on rental. Does this sound correct? Haven’t taken any losses from previous years because income was over 150k.

  • Rudy

    Hello Gary- I am a CPA Padawan lol I am studying now to sit but I myself have an issue with rental property. Back in 2013 I rented my second home in MD, couldn’t sell for what it was worth in this horrible economy so I rented it and bought my second main home in WV. I had renters in the house that totally destroyed the house had to put thousands back in it 2015.I was approved a short sale but the bank didn’t like the price so needless to say I am no longer making payments and got a lawyer to file Chapter 7 for me. What am I going to do in 2016 if I get a 1099-C for sale of proceeds. Cant I apply the 1099-C against my rentals Cost basis that I have in Turbo tax to help impact my tax liability? I really don’t think its fair we have to pay tax on debt we could never afford to being with lol Here is hoping our next President gets rid of the IRS and all these complex laws and makes things easier for a FLAT TAX. Please let me know how to apply in 2016.

  • Heather

    We bought a house in Hubert NC in 2008 as our main residence. We moved in 2012 because my husband got out of the marine corps. We paid $147k, we owe $134k and we are considering a short sale which would probably be $110-$115k. The housing market there is terrible. We have been renting it out but we are tired of loosing money month after month. I am trying to figure out if we qualify for the Form 982. It seems like me might qualify under the qualified real property business indebtedness or the qualified principal residence indebtedness. I am trying to get my ducks in a row before we make this decision to short sale. Thank you.

  • Deni Mehle

    Hi Gary – I have a client who received a 1099-C for a Bank of America home equity loan on a rental. The money from the home equity was used for the rental. I know that I can exclude this income, but since I have never encountered this, I am having trouble trying to follow what I am supposed to do. I know I have to lower the depreciable basis, but where do I do that? What form or schedule would I use to show that I would be reducing the basis on this rental? Please help. I have marked 1d on the 982, and line 4 on part II. This just seems to easy. I feel like I’m missing a big step.

  • doug

    We have a rental property, we had a Hamp modification last year. The principal was
    reduced from 354,000 – 245,000. We will receive a 1099 for the next three years per the agreement as the principle will be forgiven in 3 increments. This year we received a 1099 for 79,000. The house was purchased for 294,000 in 2004 then refinanced for the higher amount in 2007. Our CPA says the we have to change our basis to 294,000 – 79,000 = 215,000 to calculate the depreciation. This seems wrong. Can you explain.

  • Rosemarie Acosta

    Gary –

    I just received your info thru Gerri Detweiler. I tried to call you but cannot get through. Can you please email me for a time to consult?

    Thank you.

  • Julie

    Hi Gary- I’m wondering if the cost basis of rental property should be reduced by the amount of cancellation of debt? I have a 1099-C Foreclosure for rental property. Box 2=$435,028. Box 4=$200,000. I am personally responsible for repayment. I am insolvent. Form 982 cancels the debt of $235,028. Cost of the property is $300,000 and depreciation is $12,274. Form 4797 is $11,657).

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