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Hi, can I help?
The fair market value of the property is not really relevant to the amount of cancelled debt
Fair Market value WILL come into play if you, say, sell the asset for a gain (sales price minus basis = capital gain) ... but the cancelled debt is considered income by IRS because its a net increase in wealth (money that was borrowed and used for something but not paid back
IRS has ALWAYS counted forgiven debt as income ... but with the 2007 debt forgiveness act (now extended through 2013) they are waiving - by your filing a 982 form any income tax on this forgiven debt in three scenarios; (1) primary residence mortgage forgiveness (2) Debt forgiven while insolvent (where your debts are higher than your assets) and (3) bankruptcy
So the amount on that 1099-C that the lender gives you is HOW much is forgiven (the amount THEY will write off on their taxes as a bad debt) and IS the amount that would normally have been taxable. For this year, however, IRS is waiving the tax on that forgiven debt.
You file form 982, essentially to tell the IRS that this is one of those three types of exemptions (1) Primary residence mortgage indebtedness (2) debt forgiven while you were insolvent or (3) Debt discharged in bankruptcy
Now, what you have to understand is that forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.
The way you wrote your question...The answer to the first one is $50,000 (it's forgiven recourse debt).The answer to the second on is zero, because the debt was non-recourse.
Fair market value of the property is irrelevant. (to the amount of debt forgiven) ... forgiven debt is the amount of recourse debt outstanding when the lender forgives it
On a non-recourse loan, there IS no forgiven debt because the lender sells the house and cannot come after the person ... the debt is considered paid off by the asset, so (conceptually) there is no debt left to forgive
The amount of the 1099 is the amount forgiven.
Fair market value of the asset is irrelevant.
There IS no calculation, unless you're talking about insolvency
Is Cancellation of Debt income always taxable?Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve: