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Jacy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 568
Experience:  Nine years individual income tax preparation and consulting
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I owned a rental property and did a short sale in Feb 2010.

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I owned a rental property and did a short sale in Feb 2010. I never claimed depreciation on my taxes for it. I purchased it for 144,000 in 2006 and short saled it for 105,000 in feb 2010 with 9000 in selling costs. The bank (mortgager) accepted $96000 for the short sale. My question is this. Because it was a rental property can i still claim insolvency against the cancellation of debt? How do i report this on my tax return? Do i use form 982?



Yes, you can use Form 982 to exclude the income from cancellation of debt to the extent you are insolvent. You can use the insolvency worksheet in IRS publication 4681 :


Basically, the amount your debts exceed your assets is the amount you are insolvent. This is the maximum exclusion.


Thank you for your question,



Customer: replied 6 years ago.
Ya i read that same article. I was just wanting to make sure I could still file that form even if it was rental property and not my primary residence



There are several exclusions for cancelled debt, one of which is due to insolvency. There is also an exclusion for qualified principal residense indebtedness, but you are right, this one doesn't apply to rental property.


Thanks again,



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