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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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short sales on rental property , i got 1099 c of 205k FMV $100K

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short sales on rental property , i got 1099 c of 205k FMV $100K Outstanding Bal $300k, sold it for $95 k Adjusted basis is $280k (300 minus acc. dep of 20k) Will all the 205,000 1099 c be taxable or will i be able to write of the diffrence between ajusted basis 280k and FMV 100K (280-100 = 180) Is it 205-180= 25k taxable or all 205k is taxable I am not insolvent
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.

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.

Customer: replied 2 years ago.

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)

Expert:  Lev replied 2 years ago.

so with form 982 i can drop my 205,000 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 is capital gain or loss

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.

 

Customer: replied 2 years ago.

basically

adjusted basis is cost minus deprecition 300-20=280

fmv 100

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

300-95= 205

Expert:  Lev replied 2 years ago.
When you report the sale transaction on form 4797 -
the first step to determine the adjusted basis.
300K (purchase price) - 20K(depreciation) - 220K(forgiven debt excluded from taxable income on form 982) = 60K - that is your adjusted basis.
The second step - to calculate the gain on the disposition.
$100K (FMV of the property is treated as a sale price) - 60K (adjusted basis) = 40K

That gain is treated as:
-- first 20K - depreciation recapture will be taxed as a regular income
-- the remaining 20K will be taxed as a capital gain.
The outstanding balance has no effect on determination of taxable income.
Customer: replied 2 years ago.

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

 

Gain/loss 100k-60=40k

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

 

 

Expert:  Lev replied 2 years ago.
Normally - the price at which the property is sold - is its FMV.
If these values are different - you need to use the sale price to calculate the gain on the disposition - so corrected estimate would be .
95K (FMV of the property is treated as a sale price) - 60K (adjusted basis) = 35K.

That gain is treated as:
-- first 20K - depreciation recapture will be taxed as a regular income
-- the remaining 15K will be taxed as a capital gain.

Please be aware that example I provided for illustration only - you will need to verify all values for reporting.
Customer: replied 2 years ago.

Basically gian/loss is fmv plus dep less cost

100+20-300=180 loss

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

 

Customer: replied 2 years ago.

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

 

Expert:  Lev replied 2 years ago.
You are correct
-- form 982 is used for two purposes (1)to exclude forgiven debt from taxable income and (2) to reduce tax attributes - in your situation - to reduce the basis of your depreciable real property by the amount excluded
-- form 4797 is to report the disposition of business property - rental property in your situation.
-- when you calculate the gain or loss - your basis is reduced by the amount of debt forgiven.
-- deprecation is recaptured when you have a gain.
Customer: replied 2 years ago.

what about 401k and simple ira i have through my employement

whne i do the solvency worksheet.......are the retriements considered as an asset

Expert:  Lev replied 2 years ago.

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.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22704
Experience: Taxes, Immigration, Labor Relations
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