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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I am doing my 2013 taxes. I have a 1099-C successfully

Customer Question

Good Afternoon, I am doing my 2013 taxes. I have a 1099-C for a successfully executed modification of a rental property. Have done all the research, but am not finding my situation...the 1099-c has the following information...Box 1 date of identifiable event... 05.17.13. Box 2 Amount of debt discharged... $ 147,774.50. Box 3 Interest if included in box 2... $ 72,461.76. Box 4 Debt description... Mortgage Box 5 checked for personally liable for repayment of debt. Box 6 Identifiable event code...left blank Box 7 Fair market value of property...0.00 So, I have the Form 982, but not sure which box/boxes to check. Also, I have the insolvency worksheet and not certain how to finish. Thanks for your help. Please help me finish out this part of filing my 2013 taxes.
Submitted: 10 months ago.
Category: Tax
Expert:  Lev replied 10 months ago.

Generally - as you are personally liable - the amount of forgiven dent is included into your income.
As that is related to rental property - report that income on line 3 schedule E.

You have an option to exclude that income by filing form 982.
If you do so - on form 982

https://www.irs.gov/pub/irs-pdf/f982.pdf

check box d - Discharge of qualified real property business indebtedness

put the amount discharged on line 2 - and on line 4.

If interest from box 3 was previously deducted - you will need to use the full amount from box 2 form 1099C as your debt discharged.
If the interest was NOT deducted - your debt discharges is (box 2) MINUS (box 3)

You will need to reduce the basis of your property by the amount forgiven which you excluded from your income - that is the meaning of line 4 reporting on form 982.

Questions?

Customer: replied 10 months ago.
Ok...so, what about the insolvency worksheet? I thought I could avoid paying taxes on this amount discharged with the insolvency worksheet. Also, to clarify...you said to put the amount discharged on line 2 and on line 4 of the 982, but then you said to subtract box 3 from box 2. the remaining amount after subtraction, is that the amount to enter on line 4 of the 982? Also, what about the insolvency worksheet? Thanks
Expert:  Lev replied 10 months ago.

That would be another possibility...
To exclude COD - cancellation of debt income using Insolvency exemption.
But as long as you may use an exemption for "qualified real property business indebtedness" - that woudl not make any difference.
But - formally speaking - you may use any exemption for which you qualify.

So if for some reason you like an insolvency exemption better - you would do the same - but on line 1 you will select a different option.

If you choose to do so - you woudl need top prepare an insolvency worksheet - but woudl not need to send it with your tax return - just keep for your own records.

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