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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
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Experience:  10 years experience
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We puchased home in CA and lived in for 3-4 years. Then moved

Resolved Question:

We puchased home in CA and lived in for 3-4 years. Then moved to Alaska and rented out the CA home until foreclosure on 5/19/2010. We recieved 1099-C. Need to know how to report:

Bought home for $385,000
Depreciation taken: $25,667
Amount of debt canceled: $162,736

Most importantly - Can we take loss?

Thank you
Submitted: 5 years ago.
Category: Tax
Expert:  Wallstreet Esq. replied 5 years ago.

Wallstreet Esq. :

Hello I am a licensed attorney here to help you with your question, please review my response and do not hesitate to ask for clarification.

Customer:

ok - thanks

Wallstreet Esq. :

You are depreciating the property because it is an investment property?

Wallstreet Esq. :

How long have you lived their?

Customer:

lived in it for 3 years then rented it for 2

Wallstreet Esq. :

Do you want to file for insolvency and not pay the cancelled debt?

Customer:

no...the bank foreclosed already. need to know tax consequence of the 1099-c and possibility of writing off the loss

Wallstreet Esq. :

The 1099c is canceled debt and is included as income,

Wallstreet Esq. :

You can file insolvency and not have to pay the debt.

Customer:

we know that - is there any tax loss since we put the property into service as rental?

Wallstreet Esq. :

You can deduct a loss on the property and that is possible.

Wallstreet Esq. :

1. Gain or loss from an acquisition generally is measured by the difference between your adjusted basis in the property and the amount of your debt canceled in exchange for the property, or, if greater, the sale proceeds.

2. Income from the discharge of indebtedness in the amount of the unpaid balance of your canceled debt if you abandoned the investment property, but not your primary residence.

3. Loss from abandonment up to the adjusted basis of the investment property at the time of abandonment are reported on Form 4797 and Schedule D.

4. Losses on acquisitions or abandonment of property held for personal use are not deductible.

Wallstreet Esq. :

You would have to calculate the losses from above listed categories.

Wallstreet Esq. :

If you make an election to exclude canceled qualified real property business debt from income, you must reduce the basis of your depreciable real property (but not below zero) by the amount of canceled qualified real property business debt excluded from income. The basis reduction is made at the beginning of 2010. However, if you dispose of your depreciable real property before the beginning of 2010, you must reduce its basis (but not below zero) immediately before the disposition. Enter the amount of the basis reduction on line 4 of Form 982.

Customer:

Even if we used as personal residence before renting it?

Wallstreet Esq. :

If you sell an investment property for a loss, your loss may be deductible against your income. Investment properties are treated very similar to equity investments in this regard. You will need to fill out IRS form 4797 in order to claim your losses.




Wallstreet Esq. :

If the property is considered a primary residence than the cancelled debt is not an issue, but you could not take a depreciation either.

Wallstreet Esq. :

At this point you could make an argument that it was a rental and investment property, and since you have depreciated it, and only investment properties can be depreciated you will need to be consistent.

Customer:

I think we need a tax guy for more specific answers - but thanks for the info.....

Wallstreet Esq. :

I am a tax attorney, and have answered your questions as state, I am not sure what you are asking.

Customer:

look at the original question - we need to know specifically: how to deduct the loss if it is allowed

Wallstreet Esq. :

Your question is can you take a loss, your answer is yes.

Wallstreet Esq. :

If you sell an investment property for a loss, your loss may be deductible against your income. Investment properties are treated very similar to equity investments in this regard. You will need to fill out IRS form 4797 in order to claim your losses.

Customer:

"how to report" specifically

Wallstreet Esq. :

You will have to complete IRS form 4797

Customer:

ok thanks

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