How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lev Your Own Question

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22693
Experience:  Taxes, Immigration, Labor Relations
870116
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

My client received Form 1099-A with principal of $66,458 and

Resolved Question:

My client received Form 1099-A with principal of $66,458 and FMV of $22,000 on one of their rentals, a difference of $44,458. For that property, there is only approximately $41,000 of basis left AFTER 2012 depreciation. I will use Form 982 to reduce the tax attributes, but I think I am limited to the $41,000 and may have income for the difference. Since my client also has about 15 other real property rentals with plenty of basis, do I have income for the difference on the one property they received the 1099-A on (it was definitely an abandonment and not a foreclosure) or am I able to reduce the basis difference on one of the other properties (none collateralized by the 1099-A property)? Also to note, all of the properties were in a chapter 7 bankruptcy finalized in 2013.

Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
The form 1099A report the fact of disposition of the property. It doesn't tell anything if the debt is forgiven or not.
If the debt is NOT forgiven - there is no reason to use form 982.
If the debt is forgiven - your client should receive form 1099C - and then - you will use form 982 to exclude forgiven debt from taxable income. If the chapter 7 bankruptcy finalized in 2013 - it is likely that debt would be forgiven in 2013 as part of the bankruptcy procedure - and your client will receive form 1099C in coming January.

LEV :

I think you are eligible to exclude cancelled debt from taxable income and do not need to list it on line 21.
Considering your situation - you do qualify to exclude the canceled debt as "qualified real property business indebtedness" No need to verify insolvency - still you will need the tax attribute reduction - means the basis should be reduced by the amount of debt forgiven.
Use Form 982 - www.irs.gov/pub/irs-pdf/f982.pdf - specifically - for rental property - check the box 1(d) - Discharge of qualified real property business indebtedness , and put the forgiven amount on the line 2 and on line 4 and line 10a. The line 10 is specifically to reduce the basis.
However - the basis will not be reduced below zero. If you use "qualified real property business indebtedness" exclusion - no need to reduce the basis for other properties.

LEV :

If the property is disposed in 2012, but the debt is not forgiven in 2012 - the debt becomes a non secured debt ( as there is no collateral) - and will be excluded on 2013 tax return as "discharge of indebtedness in a title 11 case" - in this case - tax attributes should be reduced.

Customer:

Thanks Lev. To be clear, are you suggesting I don't report anything for 2012 and wait to see if they receive a 1099-C for 2013?

LEV :

Correct - I suggest to verify if the debt was forgiven in 2012 and if yes - there should be form 1099C for 2012.
You may order the tax account transcript to verify form 1099C and may contact the lender for clarification.

LEV :

If the debt was not forgiven in 2012 - that would be only disposition of the property - reported as a sale - and most likely - there would be a loss.

Customer:

Pretty sure there was no 1099-C...just the 1099-A. But I will verify per your suggestion. If the debt was not forgive in 2012, I think I would have a slight gain based on the difference of the principal, FMV and basis of the property. I suppose the gain would be the same as the difference in my exclusion.

Customer:

Oops...hit the enter button to go to next line. Sorry.

Customer:

Final question...if I ended up with income because the exclusion was less than the principal/FMV in any other case, would the income go on Schedule E or line 21?

LEV :

Seems as the disposition is treated as a sale at FMV of $22,000. If the basis is 41,000 left depreciation - I see a loss. That loss will go to line 14 (1040) from form 4797.

Customer:

I'm pretty sure it is ordinary income, but I have heavy losses on Schedule E so it would "disappear" if put there.

Customer:

Oh, I see. I guess I was considering the sale as the $66,000 principal and not the $22,000 FMV.

LEV :

The loss from disposition of rental property is fully used to offset other taxable income - no rental loss limit on disposition.

LEV :

You will only use the amount of principal outstanding as your sale price if that is non recourse debt.
Generally - you need to use FMV as a sale price.

Customer:

Great. It is recourse debt for sure. I think you have given me enough information to go forward. I really appreciate your expertise. First time user and glad I found this site. Have a great evening and thanks again!

LEV :

I am glad to be helpful.
Please be sure to come back if any clarification needed.

Customer:

I certainly will

LEV :

My goal is to provide EXCELLENT service.
If you will later ask additional questions - I might be not immediately available - but surely will address all your concerns.

LEV :

As I know - Indiana is a recourse state - so - your client should get form 1099C at some point. You just need to verify when.

Customer:

Thanks for all your help. One last thing. Is there a "button" to print this conversation or just copy and paste to Word?

Customer:

Got it!

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22693
Experience: Taxes, Immigration, Labor Relations
Lev and 2 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.