2-Family Home (1/2 rental) with 1099-C


L

Luka

I have a client who received a 1099-C on his 2 family home which he
lives in and rents the other half. The 1099-C was received due to
renegotiation which his lender due to major drop in property value.
Do I reduce his basis for each? Might there be any taxable income
since 1/2 the property is rental?
 
Ad

Advertisements

A

Alan

I have a client who received a 1099-C on his 2 family home which he
lives in and rents the other half. The 1099-C was received due to
renegotiation which his lender due to major drop in property value.
Do I reduce his basis for each? Might there be any taxable income
since 1/2 the property is rental?
Look at the previously filed Schedule Es to see if the client
traced the loan to both his home and the rental. If he has been
allocating interest to the rental, then he has to allocate the
cancelled debt to the rental. This would be entered as rental
income on the Schedule E. If all the interest expense has been
going on the Schedule A, then he can use the tax exclusion to
avoid cancellation debt income on his main home.
 
L

Luka

On 2/18/10 6:51 AM, Luka wrote:> I have a client who received a 1099-C on his 2 family home which he

Look at the previously filed Schedule Es to see if the client
traced the loan to both his home and the rental. If he has been
allocating interest to the rental, then he has to allocate the
cancelled debt to the rental. This would be entered as rental
income on the Schedule E. If all the interest expense has been
going on the Schedule A, then he can use the tax exclusion to
avoid cancellation debt income on his main home.
Yes, the prior return shows as 1/2 rental. Rather than applying 1/2
of the 1099-C amount as rental income, could I just reduce the basis
of both the rental and non-rental portion each by 1/2 of the 1099-C?
I know this is the proper way to handle the non-rental half on a
primary home, but am not sure about the rental half.
 
Ad

Advertisements

A

Alan

Yes, the prior return shows as 1/2 rental. Rather than applying 1/2
of the 1099-C amount as rental income, could I just reduce the basis
of both the rental and non-rental portion each by 1/2 of the 1099-C?
I know this is the proper way to handle the non-rental half on a
primary home, but am not sure about the rental half.
My reading of the law is that canceled debt becomes rental
income. This is consistent with how canceled personal debt is
handled. I.e., it winds up on Line 21 of the 1040 as income.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top