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We need to know some additional information before proceed with filing...
- was that your primary residence?
- was any outstanding mortgage balance forgiven or written off at foreclose?
- did you receive form 1099S or 1099A or 1099C regarding that transaction?
- any additional circumstances?
If that was your primary home - at least two out of last five years before disposition - that is classified as your primary home for tax purposes.
If that correct - then no gain is recognized for tax purposes.
Regarding your tax reporting - that is mainly depends on what forms you will receive - so I suggest to wait before you start preparing your tax return. You may expect all forms to be sent out by the end of the month of January.
Most likely - you will receive form 1099C reporting the amount of debt forgiven - and there will be some special reporting required while that amount is excluded from your taxable income if that was your primary residence.
If the property was disposed or foreclosed - it is treated as the sale for its FMV.So line 7 on the form 1099C reports the fair market value of property - that amount is treated as the selling price.Then - you will need to use form 982 with your tax return to exclude the amount of forgiven debt - otherwise the IRS will treat that amount from line 2 as taxable income.
Here is the formhttp://www.irs.gov/pub/irs-pdf/f982.pdfYou will check box 1e - for the primary residence.on line 2 list the full forgiven amount (from 1099C box 2)thenline 10b - forgiven debt related to the principal residenceThat all you do to exclude from taxable income.The sale of your principal residence is generally not reported.But you will need all forms - when you will get them - be sure to come back and I will help you with filing.
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