Abandonment of personal residence


W

Wayne Rivers

A taxpayer abandons a personal residence that he has lived in for 10 years
and gets three forms from his mortgage company - 2 1099As
dated February 20005 showing abandonment of property with a
FMV of $350,000 and principal balances of $218,380 (1st) and
$30,371 (2nd). The same mortgage company had both 1st and
2nd mortgages. He also received a lovely 1099C for
cancellation of debt in June 2005 for $31,707 on the 2nd
mortgage.

Per Publication 544, it appears that he cannot deduct a loss
on the abandonment, but he must claim the cancellation of
debt as income. Question- is there another alternative?
This is what I was thinking-

The abandonment is considered a disposition - can he claim a
"sale" with the sales price being the sum of the 2 mortgages
and since it is a personal residence, not pay tax on the
"gain"? This would basically treat the 1099C as a 1099S
instead for reporting purposes.

Anybody else run into this? What would the IRS say if the
$31,707 isn't included as "Other Income" but on Schedule D?

Wayne
 
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S

Seth Breidbart

Wayne Rivers said:
A taxpayer abandons a personal residence that he has lived
in for 10 years
and gets three forms from his mortgage company - 2 1099As
dated February 20005 showing abandonment of property with a
FMV of $350,000 and principal balances of $218,380 (1st) and
$30,371 (2nd).
This doesn't make sense. Why did he walk away from $90,000
(OK, maybe $40,000, depending on how much you believe their
FMV) cash?
The same mortgage company had both 1st and
2nd mortgages. He also received a lovely 1099C for
cancellation of debt in June 2005 for $31,707 on the 2nd
mortgage.
Did the mortgage company sell the property? How much did
they get? If they sold it for the balance of the first
mortgage (only), then their forms make sense; but in that
case, where did the FMV of $350,000 come from?

If they got enough to pay off both mortgages, there was no
cancellation of debt.

Seth
 
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H

Harlan Lunsford

Wayne said:
A taxpayer abandons a personal residence that he has lived
in for 10 years
and gets three forms from his mortgage company - 2 1099As
dated February 20005 showing abandonment of property with a
FMV of $350,000 and principal balances of $218,380 (1st) and
$30,371 (2nd). The same mortgage company had both 1st and
2nd mortgages. He also received a lovely 1099C for
cancellation of debt in June 2005 for $31,707 on the 2nd
mortgage.

Per Publication 544, it appears that he cannot deduct a loss
on the abandonment, but he must claim the cancellation of
debt as income. Question- is there another alternative?
This is what I was thinking-

The abandonment is considered a disposition - can he claim a
"sale" with the sales price being the sum of the 2 mortgages
and since it is a personal residence, not pay tax on the
"gain"? This would basically treat the 1099C as a 1099S
instead for reporting purposes.

Anybody else run into this? What would the IRS say if the
$31,707 isn't included as "Other Income" but on Schedule D?
Is the correct total debt figure 218 + the 30? or a
combination of the 218, 30 AND the 31? If the latter,
that's over the 250k so may be taxable. But, is he married
and is wife on title?

Looks like sale (disposition) of personal residence to me.

ChEAr$,
Harlan Lunsford, EA n LA
 
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R

Rod

Wayne Rivers said:
A taxpayer abandons a personal residence that he has lived in
for 10 years
and gets three forms from his mortgage company - 2 1099As
dated February 20005 showing abandonment of property with a
FMV of $350,000 and principal balances of $218,380 (1st) and
$30,371 (2nd). The same mortgage company had both 1st and
2nd mortgages. He also received a lovely 1099C for
cancellation of debt in June 2005 for $31,707 on the 2nd
mortgage.

Per Publication 544, it appears that he cannot deduct a loss
on the abandonment, but he must claim the cancellation of
debt as income. Question- is there another alternative?
This is what I was thinking-

The abandonment is considered a disposition - can he claim a
"sale" with the sales price being the sum of the 2 mortgages
and since it is a personal residence, not pay tax on the
"gain"? This would basically treat the 1099C as a 1099S
instead for reporting purposes.

Anybody else run into this? What would the IRS say if the
$31,707 isn't included as "Other Income" but on Schedule D?

Wayne
It is a sale of personal Residence subject to all the same
rules as a normal sale as far as gain and exclusion

Also there can be debt forgiveness income depending on
whether was sold for enough to cover the debt and whether is
recourse or non recourse loan, Some states house loans are
non recourse by state statute, have ran into a couple of
situations of 1099cs and 1099As showing up couple years
later, both my cases the clients had no additonal taxes owed
although had gotten IRS letters proposing they owed 15k-20k,
both would have had debt forgiveness income but due to state
statute they did not.
 
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A

Arthur Kamlet

Wayne Rivers said:
A taxpayer abandons a personal residence that he has lived in for 10 years
and gets three forms from his mortgage company - 2 1099As
dated February 20005 showing abandonment of property with a
FMV of $350,000 and principal balances of $218,380 (1st) and
$30,371 (2nd). The same mortgage company had both 1st and
2nd mortgages. He also received a lovely 1099C for
cancellation of debt in June 2005 for $31,707 on the 2nd
mortgage.

Per Publication 544, it appears that he cannot deduct a loss
on the abandonment, but he must claim the cancellation of
debt as income. Question- is there another alternative?
This is what I was thinking-

The abandonment is considered a disposition - can he claim a
"sale" with the sales price being the sum of the 2 mortgages
and since it is a personal residence, not pay tax on the
"gain"? This would basically treat the 1099C as a 1099S
instead for reporting purposes.

Anybody else run into this? What would the IRS say if the
$31,707 isn't included as "Other Income" but on Schedule D?
I tried to make sense of these figures, and couldn't, so
I'll just offer the generic tratement when receiving 1099-A
and 1099-C.

The 1099-A is treated as sale, and if a gain, Sec 121 might
apply.

If a loss, that sale should be shown, and loss disallowed on
the next line.

The 1099-C is a line 21 ordinary income item unless the debt
is discharged in bankruptcy or is excluded from income to
the extent of taxpayer's insolvency. Insolvency here is
basically the excess of liabilities over assets.

I have been recommending any taxpayer with a 1099-C who
claims insolvency should obtain a balance sheet from a
third-party disinterested accountant, and I will be happy to
use that balance sheet to prepare the back-out statement for
the 1040.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
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R

rick++

My state has the dubious distinction of the highest
foreclosure rate in the country. Yet 1099Cs are rare when I
look at the foreclosure listings on the county websites.
The main reason is most foreclousures are coming at the low
end where the loans are governement insured. The second is
that prices havent fallen yet, so auctions are often
covering the loans.
 
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