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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28305
Experience:  Taxes, Immigration, Labor Relations
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My second home foreclosed in 2015, I received a 1099C. I

Customer Question

My second home foreclosed in 2015, I received a 1099C. I purchased another home in July 2014, for medical reasons, and had to get rid of this home even though it was rented during 2014, but not 2015. Do I have to pay taxes on the debt cancellation?
Submitted: 12 months ago.
Category: Tax
Expert:  Lev replied 12 months ago.

Hi Mary and welcome to our site!

There are several ways to deal with income reported on 1099C.

The first question before we may move forward - to verify if you are personally liable for that debt?

That is indicated on form 1099C box 5 - please take a look if that box checked?

Customer: replied 12 months ago.
that box is checked
Expert:  Lev replied 12 months ago.

Then we need to be clear if that was your rental property - there will be certain way to report.

But if that property was converted to personal use - as your second home - there will be different way to handle that reporting.

So we need a clear determination regarding HOW that property is classified.

Customer: replied 12 months ago.
I moved out in 2009 and rented the property, I've been declaring the rental on my taxes since 2010.
Expert:  Lev replied 12 months ago.

So far - as we are creal that is your rental property.

As that COD income is related to rental activity - here are two ways to handle it

(1) you may simply report that income on schedule E as rental income and if you have previously disallowed rental losses - these will be fully deducted in the year the rental property is sold - and will offset your COD income.

(2) you may exclude that income - and would need to use form 982 to claim an exclusion. But in this case - the basis of your property will be reduced by that excluded amount.


So - you will need to verify which way is more beneficial - and can use either.


Regarding the sale of your rental property - that transaction is reported separately on form 4797.

For that reporting you will need sale price, adjusted basis and accumulated depreciation.

Depending on circumstances - you might have either gain or loss on that sale.


Customer: replied 12 months ago.
Can I deduct the time the renters spent in the property as a lost?
Expert:  Lev replied 12 months ago.

"the time" is not actually your deductible expense...

So we need to verify your rental income and rental expenses.

If you received rental income - that is reported on schedule E.

If for some reason you did NOT receive rental fees - you would not include these amounts into your income - so there is no need to deduct these.

But if for some reason rental fees are included into your income - but later you have to pay these back - that is reported as returns and allowances - and reduction of your rental income.