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I am a Washington state resident--My principle residence was

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foreclosed in 2010. I received...
I am a Washington state resident--My principle residence was foreclosed in 2010. I received a form 1099A with principal balance outstanding (box 2) $300k; FMV (box 4) $200k. My basis is $160k. It was my principle residence and purchased in 1996. I qualify for the $250k capital gains exclusion on sale of principle residence. Box 5 on the 1099A "Was borrower personally liable for repayment of the debt" is marked "yes" although Washington is a non-recourse state.

From what I read if it is non-recourse then sales price is $300k and basis is $160k. Form 982 does not enter into it. There is no cancellation of debt income, and the resulting $140k gain is capital gain and excludable since this is under $250k? Is this correct? What forms need to be filed relative to the 1099A?
Submitted: 6 years ago.Category: Tax
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2/1/2011
Tax Professional: RD, Certified Public Accountant (CPA) replied 6 years ago
RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8,784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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RD :

Yes this is correct. Being non recourse loan, this would be the preferred manner of reporting.

RD :

Here is a link for your reference

RD :

see example 5 step II

RD :

Step 2

Customer :

So no schedule D and no form 982?

RD :

Yes, that is correct. Since there is no taxable gain, no Sch D is required.

RD :

Also, you do no have cancellation of debt income and so no exclusion on Form 982 is required

RD :

You will report the sale on the Worksheet and you can include a note stating that this was a non recourse loan.

Customer :

I don't like the fact that the 1099A has box 5 marked "yes" saying that I am personally liable for repaying the debt. Will that send a red flag to the IRS?

RD :

You can include a note that this is a non-recouse loan. Alternatively, you can ask the lender to amend the Form and issue it to you.

Customer :

Thank you very much!

RD
RD, Certified Public Accountant (CPA)
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