Hi and welcome to Just Answer!
You will exclude canceled debt as related to the rental property - but you need to adjust your basis by the amount you exclude - will use form 982. No need to be insolvent.
Then - you will report the sale transaction considering your new adjusted basis - form 4797 - and will determine your gain or loss.
Let me know if you need any help with reporting.
so with form 982 i can drop my 205,000 1099c
form 4797 is capital gain or loss
how will i adjust my capital gains with ordinary income (1099c)
That is correct - following you need to report:
Form 982 - www.irs.gov/pub/irs-pdf/f982.pdf
specifically - for rental property - check the box 1(d), and put the forgiven amount $220,000 on the line 2 and on line 4.
You should also reduce the basis of your depreciable real property by the amount excluded. Part II of form 982 is to reduce tax attributes.
Form 4797 - http://www.irs.gov/pub/irs-pdf/f4797.pdf - is to report the disposition of business property - rental property in your situation.
Your new Adjusted basis will be $280k - $220 = $60.
So you will have a taxable gain = $100K (FMV of the property) - $60K (adjusted basis) = $40K - from which $20 will be depreciation recapture and the rest will be capital gain.
adjusted basis is cost minus deprecition 300-20=280
loss is fmv less abasis= 180 loss
if i get 1099c for 220 which is taxable
than 220-180=40 taxable
you mentioned 20k depreciation recapture.......add back?
how did u get 220 as 1099c
outstanding bal is 300k and i sold it for 95k
ok i am understanding it better now
recapture is add back which is 20k depn
300k cost - 100 FMV= 200K PLUS depn = 220k
adjusted basis is 300-20=280
280-220= 60k new adjusted basis
20k will be treated as ordinary income
20k capital gain which is will be taxed 15%
so fmv is always the price the property was sold for
appriasal and fmv are not samething?
like y house was appraised for 110k and sold for 95k
Basically gian/loss is fmv plus dep less cost
my 1099c is 200
200-180 =20 k is capital gain
Since depreciation is recaptured and we claimed it as expense now it will be reveresed and treated as ordinary income
i am sorry , just trying to understand and hope not confusing you
my arguement was how can you subtract capital gains against ordinary income
BUT i guess form 982 allows the exclusion of forgiven debt from income thats why we can subtract 200 from adjusted basis and named it as new adjusted basis
Also in the insolvency worksheet
it asks for stocks and bonds
what about the 401k we have inevsted with work...........401k is not gauranteed but a retirement we believe in........is 401k or simple ira through emeployement is an ASSET
basically forgiven debt is excluded from taxable income
thats why we fill form 982
form 982 is use to offset business loss against taxable income 1099c
Deprecaition is a recapture when u owned it but you pay back at dispostion
Gain/loss is ofcousre fmv less adjusted basis
usually adjusted basis in cost less dep , repair maint and add improvemnts or what ever is capitalised
my adjusted baisis should be 280k
what about 401k and simple ira i have through my employement
whne i do the solvency worksheet.......are the retriements considered as an asset
First of all - you do not need to be insolvent to exclude forgiven debt for rental property - on from 982 - - check the box 1(d) - Discharge of qualified real property business indebtedness
If you do the insolvency worksheet - yes - you need to include assets in your retirement funds.