Our home foreclosed on April 18, 2012
For federal and California state income tax
purposes, how do we report it?
The time line is thus
1. We bought a First home on CA in 1987 for $75 K
2. We purchased and moved to a Second home in May 1992 and converted First house to a rental property.
3. The First house caught fire on the 28th of December in 2004 while rented.
4. Insurance paid $25K for damage not reportable to IRS
5. We repaired and remodeled First house and moved back into it at the end of 2005.
6. We refinanced First house as owner occupied for the amount of $194,600 on November 16, 2007 to pay for repairs and remodeling of the home. Additionally, at the same time, we opened a line of credit for the amount of $27,800.
7. On the LOC of 27,800, we used only $8400 for home improvement.
8. My wife moved out of First house in August 2009 back to Second house.
9. I stayed at First house until it foreclosed on April 18, 2012 for the amount of $96,600.
10. I received 2 form 1099-Cs from Chase (mortgager). One shows debt cancelation in the amount of $98,000 (against the loan amount of $194,600) and the other shows debt cancelation for $8,400 covering the LOC balance.
Here are our questions:
1. Do the Re-fi and LOC qualify for home mortgage forgiveness relief?
2. What happens to depreciation recapture for the period it was used as a rental? We lived there for more than 3 years prior to foreclosure thus making it our primary residence.
3. We are using Turbo Tax
to do our taxes, but it doesn’t seem to separate sale from foreclosure.