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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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I received a 1099-C for $58658. My partner also received the

Customer Question

I received a 1099-C for $58658. My partner also received the same amount. The 1099-C was made to each of us personally for a recourse debt. I felt that in regards XXXXX XXXXX real property I could use form 982 to write off some or all of the debt. When I tried using the 982 form I could not qualify from the figures I used. The first question would be if this really qualified as real business property used in a trade or business. The secured property was new home construction and not business property used in a trade or business, but rather it would be the product of the business so I may not qualify at all. When entering the figures as follows, loan balance before short sale $255000, loan balance after short sale was $117316 and the fair market value of the property was $119000. I had read that the only portion which might qualify for exclusion would be the amount of debt which exceeds the fair market value. Everything points to no exclusion but want to be sure.
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question, and thanks for using JustAnswer.com. The amount of debt that qualifies for the exclusion is the amount on the 1099-C - but to the extent that your liabilities exceed your assets immediately prior to the discharge. So, if your liabilities exceed your assets by at least $58,658 then you could exclude the entire amount.

If I understand you correctly, you would have sold this house to a customer, so it's property held for sale. You can treat this as depreciable property by checking "yes" on line 3 of Part 1.

The portion that you are confused about is the Part II where you reduce your basis in the asset. You will take the canceled debt and first use it to reduce any net operating loss that you may have for your business on line 6. If none, move to line 7. If you don't have business carryover credits, then move on to line 8. If you don't have a minimum tax credit, move on to line 9. On line 9, reduce any capital loss that you may have by the debt canceled. If your loss is less than the debt canceled, then you would only put the amount of the capital loss on this line. The remainder would go on line 10a.

If you had no capital loss then on line 10a you would put the LESSER of:

1) the amount on line 2 which is non business bad debt
2) the amount by which your liabilities exceed your assets AFTER the discharge
3) Your basis in depreciable assets

If you still had debt left over, you would skip line 11 as you are not a farm. Line 12 would reduce your passive activity losses and line 13 would reduce your foreign tax credit. It's rare to get that far down the list.

I know it's a difficult schedule. I hope this information has been helpful to you. Please let me know if you need anything additional. Thanks again for using JustAnswer.com and have a great day.

** Please take a moment to rate my response as "Excellent" so that I may be compensated for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site. This answer is not to be construed as financial or legal advice. Please contact a local tax professional, and do not rely on this assessment to avoid penalties or to make financial decisions. This is for informational purposes only**


You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Customer: replied 1 year ago.

Still little confused but getting better. On line 6 not sure what to put down. each partner has a net operating loss for the year of $18698; is this what goes on line 6?

Expert:  Megan C replied 1 year ago.
Thank you for your follow up. Yes, you would first reduce your NOL so your NOL would go away because of the cancellation of debt income.

Please let me know if you need anything additional. Thanks again for using JustAnswer.com and have a great day.

** Please take a moment to rate my response as "Excellent" so that I may be compensated for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site. This answer is not to be construed as financial or legal advice. Please contact a local tax professional, and do not rely on this assessment to avoid penalties or to make financial decisions. This is for informational purposes only**


You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 5 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Have a question. If possible, and if there is additional fee that is ok, but would you consider putting down the figures on form 982 line by line since I am still little confused. thanks

Expert:  Megan C replied 1 year ago.
Thank you for the positive rating. I really enjoyed working with you – please feel free to request me again when you come back to ask another question. Simply enter "MyVirtualCPA" in the subject of your question, and it will be routed directly to me. Thank you again for using JustAnswer. For the quickest service, please post a new question.
Customer: replied 1 year ago.

I am still having problems with the info you gave me. I cannot complete the 982 by your instructions and therefore I am stuck on whether or not I can actually eliminate the 1099-C income. I think what happened is your a tax professional in answering me in terms I do not understand. Could you help me out with the instructions you gave me regarding the lines on the 982 form. thanks.

Customer: replied 1 year ago.

I sent you a follow up and you never answered. Sorry now that I gave you the excellent rating; but I suppose the website is set up that way to make it look enticing. When I get time I will email the appropriate person(s) who run the website about the lack of any commitment and that once a person has paid the fee they are done. I will make sure to to use the website in the future.

Expert:  Megan C replied 1 year ago.
I am sorry for the delay...I was out of the office today. Where exactly in the process are you confused? Thanks.
Customer: replied 1 year ago.

Sorry about the email, but I am frustrated. I did some research on other sites and there seems to be a concensus that as long as the debt exceeded the FMV there would be an exclusion of the amount. the original figures I gave you were slightly off,but it still falls within the same problem. So as a partner my 1099-C is $58658.The short sale my portion was $47500. The actual amount of the debt owed the bank was $127500.00 just prior to short sale. My problem is where you started talking about what to put on what lines on the 982 form. We took no depreciation since this was a house that was being constructed over more than a year. I am just confused what to put on the lines on the 982 that will show the IRS the amount I am excluding.


I thought it would have been as simple as just putting down a few number and done. Guess I was wrong.


So if you could be more specific I would most appreciate it. The part about depreciation etc we took none since it was new construction.


And I apologize for the abrupt response. Thanks

Expert:  Megan C replied 1 year ago.
Thank you for your follow up. You would place the amount of your canceled debt on line 2 of your form, if you are insolvent. If you are not insolvent, then you must claim this amount as income.

Then, on line 10a list the same amount.

Your worksheet is done.

Thanks again for using JustAnswer.com and have a great day.

** Please take a moment to rate my response as "Excellent" so that I may receive credit for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site. This answer is not financial or legal advice, and must not be used as such. For financial and legal advice, please contact a local professional.*


You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Customer: replied 1 year ago.

Okay, almost there . But when you mention being insolvent, does this me me personally or the partnership. I have a home etc. and I am not insolvent but the partnership could not pay the loan.

Expert:  Megan C replied 1 year ago.
The entity that has the loan, so in this case it would be the partnership.

Thanks

** Please take a moment to rate my response as "Excellent" so that I may receive credit for assisting you today. Please let me know if my assistance was anything less than "OK Service", as I am compensated based on whether or not I have assisted you with your issue. If you need further clarifications, PLEASE WAIT TO RATE MY ANSWER UNTIL AFTER RECEIVING FOLLOW UP FROM ME. If I receive anything less than OK Service, I do not get paid. Thank you for your kind understanding in this matter. If you have difficulties rating, then simply respond stating that you are having difficulties rating and thank me for my excellent, good, or ok service and we can get the rating applied by the site. This answer is not financial or legal advice, and must not be used as such. For financial and legal advice, please contact a local professional.*


You should be aware that your question, as with most tax questions, can never really be answered completely...addressing all the permutations; that is because of the many assumptions that have to be made I have done my best to determine what I think you are asking and answering it in the most direct and understandable manner possible. If, however, after reviewing the questions, you have any uncertainties or further questions, please do not hesitate to ask.

Customer: replied 1 year ago.

With your answer you confused me. Let me ask it this way.


What you are saying is that since I am solvent as a partner and I need to include it in my income. I am definitely not insolvent.


 


I won't bother you after you answer this!!

Expert:  Megan C replied 1 year ago.
I'm truly sorry, and this is probably not what you wanted to hear but since you, as a partner, are solvent then you must pay income tax on the canceled amount. It will go to line 21 of your tax return.

Unfortunately I have a duty to tell you of the tax rules as they stand so that you can make decisions accordingly. Please don't shoot the messenger.

And, you're never a bother. It's just a really nice day out today so I wasn't by my computer when you wrote this morning. Sorry.

Customer: replied 1 year ago.

thanks again. Now you got me straightened out. I read all kinds of stuff on the web and it was 50/50 results. But one thing I keep reading was that cancelled debt for the partnership passes to the partners and I should have realized this when I got the 1099-C with my social security # on it. thanks again.


So whenever I might have another question do I just log on to the site and your info will always be there?


 

Expert:  Megan C replied 1 year ago.
Thanks ... glad I could help. I'm usually online - if you have a question you can simply post it and put my name in the header. I'll be happy to assist. Come back any time, and I hope that this 1099-C isn't too big a burden on you. Wish it could have worked out better, but the good side is you aren't insolvent. Count your blessings there.

Please let me know if you need anything additional.
Customer: replied 1 year ago.

How would I put your name in the header. I do not have your name on any of the emails? I don't think?

Expert:  Megan C replied 1 year ago.
In the subject of your question, type "MyVirtualCPA" and I will know that I need to answer that particular question. Or, you can CLICK HERE and enter your question in the box underneath my picture.
Customer: replied 1 year ago.

Ok got ya

Customer: replied 1 year ago.

Just thought I would update you. We missed the boat entirely. My info to you was simply based on the 1099-C and the income and the fact that I was not insolvent. After further research with this complicated subject found out that since this income resulted from a short sale I had to calculate the loan and loss on worksheets which then resulted in the figures for a loss and bottom line results ended up with completely eliminating the 1099-C income and also ended up with a capital loss.


You did not miss the boat I did, since I did not give you all the information regarding the loan etc. It made sense that to work with the 1099-C you would need the loan information, any profit or loss from same, etc. I used some worksheets regarding short sales and yes it does get a little complicated, but following all the instructions and reading some other info it all became clear. I should have realized that I did not analyze where this 1099-C income came from and the only way to determine if any was taxable I needed the original information on the loan, the short sale etc.


 


Again, thanks for your help

Expert:  Megan C replied 1 year ago.
Thank you for your update. I'm glad you got your issue worked out. Thanks again for using JustAnswer.com and have a great day.

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