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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29579
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: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year 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 1 year ago.
that box is checked
Expert:  Lev replied 1 year 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 1 year ago.
I moved out in 2009 and rented the property, I've been declaring the rental on my taxes since 2010.
Expert:  Lev replied 1 year 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 1 year ago.
Can I deduct the time the renters spent in the property as a lost?
Expert:  Lev replied 1 year 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.