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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4543
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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A client owned and lived in a single family home in california.

Resolved Question:

A client owned and lived in a single family home in california. In 2008 he moved to
georgia and rented out the californai house.
The last 2 years his returns did not include the depreciation for the rental.
In 2010, he short sold his rental and also had an equity loan forgiven.

My plan is to amend his 2008 and 2009 returns to correct for non depreciation.
This will result in refunds for those 2 years.

For 2011 I will apply the short sale to the sales price of the home and reduce the home cost basis by the forgiveness of the non resourse equity loan.

Is this the correct approach? or does the forgiveness of debt for personal residences
apply since he owned and resided in the home for 2 of the previous 5 years?
Submitted: 6 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 6 years ago.

Dear Friend,


To the best of my knowledge, the rule for forgiveness of debt for personal residences apply. Kindly refer,,id=174034,00.html


I hope this helps...

Warm Regards,

Customer: replied 6 years ago.

Sorry, but I would expect a little more from you rather than sending me to a web site.

How is the short sale refected on the return?

Is the non recourcse cancellation from debt deducted from the cost basis?

Does the primary residence rule exclusion apply?



Expert:  Rakhi Vasavada replied 6 years ago.

Dear Friend,


Although you do not realize gain or loss on a short sale until you close the sale, you should still report any short sales you enter into in 2010 on Schedule D (Form 1040) if you received a Form 1099-B regarding that short sale. See the Instructions for Schedule D for more information.


In the case of a distressed property disposition with a non-recourse loan, the disposition is taxed as if it were sold for the greater of the outstanding debt or the sales price. The nature of the gain and the deductibility of any loss depend on the holding period and the nature of the property as with any other disposition. The following examples are simplified. Adjusted tax basis for calculating gains and losses can be affected by more than just purchase price and depreciation; and the deemed sales price in a disposition by a deed in lieu of foreclosure includes past due interest, but may be offset by a deduction for that interest. The primary residence rule should may apply.


I hope this helps...

Warm Regards,

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