How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Stephen G. Your Own Question
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6491
Experience:  Extensive Experience with Tax, Financial & Estate Issues
30050794
Type Your Tax Question Here...
Stephen G. is online now
A new question is answered every 9 seconds

Need clarification on Form 982 and Publication 4681.

Resolved Question:

I’ve read Form 982 instructions and Publication 4681 many times and I get more and more confused. 
I need an exact answer to my question how to fill it out in my situation, and which I am explaining in detail my situation:
Rental 2-bedroom apartment (never been principal residence) was foreclosed last year after 3 years of abandonment (3 years with no renters either). The lender sent me 1099-c with $114K of cancelled debt, it is a recourse loan. I checked my insolvency worksheet and my debt exceeds my assets by more than 114K which qualify me for full amount of debt discharge.

1) Which line do I choose 1a (insolvency) or 1d (rental property indebtedness). Does my ex non-principal apartment mortgage debt must be treated as “Indebtedness that is incurred in connection with real property used in trade or business”?

2) Should I fill part II? And if it is then which line?

3) What is this attachment of description of any transactions resulting in reduction in basis” means?

Submitted: 5 years ago.
Category: Tax
Expert:  Stephen G. replied 5 years ago.

Hi and thanks for using our service. I'll do my best to give you a complete and accurate answer. Please ask me to clarify anything you don't understand. You use insolvency. One rental property does not constitute a trade or business nor was the indebtedness incurred in connection with real property used in any other business of yours. This would be like if you owned an office building or commercial building/warehouse that housed your trade or business. Once you use the insolvency exception, they don’t apply.

You use insolvency. One rental property does not constitute a trade or business nor was the indebtedness incurred in connection with real property used in any other business of yours; this would be like if you owned an office building or commercial building/warehouse that housed your trade or business.

Customer:

I don't need to fill out part II?

Stephen E. Grizey:

No part II, no basis adjustment; you don't continue to own the property.

Customer:

What about some statement that I need to attach?

Stephen E. Grizey:

The worksheet to assist you in determining insolvency doesn't have to be filed. Part I line 1(b) is the insolvency line; 1(a) is for bankruptcy.

Customer:

Have you ever helped file taxes with the same situation and it went through and accepted. Please be honest I am terrified of the IRS.

Stephen E. Grizey:

Of course, we have a lot of insolvency cases here. The fact that they go through means nothing to any particular case. Those other sections couldn't possibly apply to you, so for you to understand it is just a process of elimination.

Customer:

If I am being audited what should I have ready?

Stephen E. Grizey:

Your worksheet computing insolvency

Customer:

What back up to this spreadsheet, most items just an estimation.

Stephen E. Grizey:

Chances of being audited for this situation are somewhere between slim and none. The IRS is getting literally millions of Form 982.

Customer:

Last question: in line 3 what should I answer?

Stephen E. Grizey:

No. It actually is "not applicable" but put No. I'd put N/A next to the No.

Customer:

Thank you very much!

Stephen E. Grizey:

You’re welcome!

Stephen G. and other Tax Specialists are ready to help you

Related Tax Questions