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My husband and I did a quick claim deed in lieu of

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My husband and I...

My husband and I did a quick claim deed in lieu of foreclosure. We purchased the house for 50,000.00 and have rented it out until we did the quick claim deed. The realator sold it for 49900 on March 22, 2017. What do I do with this (actually for a client not me)

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The clients moved out of the house and rented it for the last eight years. Do I need to do a ?????? it was not foreclosed on nor bankruptcy was filed

Submitted: 7 months ago.Category: Tax
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9/28/2017
Tax Professional: Tax.appeal.168, Tax Accountant replied 7 months ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,637
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello. Thank you for choosing this Q&A service for assistance. My name is Angela. I will be assisting you.

Q: What do I do with this (actually for a client not me)

A: Did the client receive either a Form 1099C or a Form 1099S? Please advise.

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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 7 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,188
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

HI, MY NAME’S LANE - I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice 1986.

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I am a different expert with a different answer.

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The client will not be getting a 1099-S.

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The client MAY never get a 1099-C if this is (1) a recourse state and (2) there was no contract referenced or language in the quit-claim deed that said that the house was the consideration in the exchange and loan is considered as paid-in-full.

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The lender (once they forgive any remaining debt, if they haven't in agreement for deed in lieu) will THEN send a 1099-C, but again this will only be when they have decided not come after the borrowers.

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If it WAS done (debt was forgiven) as part of the deed in lieu agreement, then the 1099-C will come by February of next year (you may be able to use form 982 to exclude the COD income). If the debt is not formally forgiven until the property is sold at auction you may not see the 1099-C until a future year.

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YOu SHOULD receive a 1099A by January/February of 2018 (if this was a 2017 transaction - assumed above)

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This is where you'll report the transaction as a sale. ALL foreclosures, deeds in lieu, and short sales are DEEMED sales by the code.

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You'll use their basis (purchase price plus improvements minus depreciation) as the basis in the reporting, and "sale" price you'll use is either the fair market value of the property or the outstanding loan balance at the time of the foreclosure. The outstanding loan balance is found in Box 2, and the property's fair market value is found in Box 4. (if box 5 is checked then this is a recourse loan)

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If you have a recourse loan, your sales price will be the lesser of these:

  • Outstanding debt immediately before the foreclosure — 1099-A, Box 2
  • Fair market value (FMV) of the foreclosed property — Box 4

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  • If you have a nonrecourse loan, your sales price will be the full amount of the outstanding debt immediately before the foreclosure. This applies even if the FMV of the property is less than the outstanding debt.​
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Tax Professional: Lane, JD, CFP, MBA, CRPS replied 7 months ago

One thing's for sure. regardless of whether there is COD income here, IRS will want to see the depreciation recaptured after 8 years of rental. (Even if the bank doesn't do the correct reporting)

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Please let me know if you have ANY questions at all, before rating me.

If this has helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

I hope that you’ll rate me based on my accuracy and thoroughness, rather than any good news/bad news content.

That’s the only way JustAnswer.com will compensate me for the work here.

Thanks,

Lane

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