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I am trying to complete my taxes using TurboTax Premier Online and have a complex short-sale situation.
I am trying to figure out if I have to fill out form 4797 for the sale, but then I also have to enter 1099c. Since I didn't rent it in 2012, it is also saying I can be relieved of the 1099c income. I'm not sure how to classify the property in these different sections.
Thank you for the answer... I typed out a whole response and some how it didn't save! GAH! Ok here goes again. but much shorter and too the point this time :)
What gives me pause is this:
If I list the short sale on 4797 (because I was using Schedule E in previous years and tracking passive losses and depreciation) I have a business loss of 178k. Because I can't qualify to claim the 143k in forgiven debt, I have to claim it as income. When I do this I end up owing a few thousand dollars in taxes.
(further more, TurboTax for some reason won't let you enter a 1099c that you received on a rental property... so I have to list it as personal debt forgiveness to even get it to enter)
If I list the short sale on Schedule D as you say, and I list the 1099c as coming from my main home, the debt is forgiven as income, but I end up owing twenty thousand dollars in extra taxes!
I can't seem to figure out why that would be. Reading your answer, it sounds like you are saying I should be happy to list it on Schedule D, but my point is that I am actually not! Is there a method for listing it on 4797 and a situation where it may be more advantageous to do so?
Thank you for all this. Last question:
When I put the 1099c on there and the home is on a schedule D, I am getting a 11k tax bill from the state of Massachusetts taxing the entire forgiven debt amount at 5.25%. Does Mass not recognize the federal exemption for short sale of a primary residence in their state taxes?