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If you received a form 1099-c from a rental property where…

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If you received a...

If you received a form 1099-c from a rental property where is it reported on the 1040. Ex. Property held for over a year. Amount owed per 1099- C is 150,000 fmv 90,000

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Adjusted basis 110,000

Accountant's Assistant: Is there anything else the Accountant should be aware of?

Since this is a rental property what amount do you report on schedule E and what amount is reported on form 4797?

Submitted: 3 months ago.Category: Tax
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3/28/2018
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 3 months ago
Dr. Fiona Chen
Dr. Fiona Chen, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,186
Experience: Former IRS Revenue Agent
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I'm Fiona, former IRS revenue agent. I am looking at your question and will get back to you soon. Fiona Chen, MPA, Ph.D., CPA, ABV, CFF, CITP,IMTA

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Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 3 months ago

Dear Customer,

Part I.

"Property held for over a year." -- There is no effect. It is not long term capital gain.

Part II.

"Amount owed per 1099- C is 150,000 fmv 90,000" -- It seems to be regular income for 60,000. However, . . .

Part III.

"adjusted basis 110,000" -- This is the key. Suggested to recalculate everything especially the treatment of depreciation taken. Therefore, you are looking at debt forgiveness 150,000 - 110,000? No.

If this is the last year of the rental property, the depreciation may need to be recaptured.

Part IV.

However, suggest to look into Form 982, the taxpayer may qualify for both or either reason(s) of

Discharge of qualified real property business indebtednes, and/or

Discharge of indebtedness to the extent insolvent (not in a title 11 case)

Look into whom the form is issued to and what EIN or SSN is used on the form.

Part V.

"Since this is a rental property what amount do you report on schedule E and what amount is reported on form 4797? "

The end of rental property, the last year is on Schedule E. The forgiveness of debt is not rental income. It is not reflected on Schedule E. It may reflect on Form 4797.

However, Form 982 and its related possibilities need to be considered first. This is the first form to use.

Please feel free to follow up.

Regards,

Fiona

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Customer reply replied 3 months ago
No exceptions are met under form 982.
Rental property was given back to the mortgage company.
Income and expenses on the rental property was properly reported on Schedule E.So, income must be accounted for on the 1099-C and reported in form 4797 as follows:
150,000(debt discharge line 2 on form 1088-C) -90,000 (fmv) = 60,000 of ordinary income on form 4797.
Is there any gain or loss from schedule D that should be recognized?
What form is used to recapture the depreciation from the rental property?
Tax Professional: Dr. Fiona Chen, Certified Public Accountant (CPA) replied 3 months ago

Dear Customer,

Part I.

"No exceptions are met under form 982."

It is almost impossible. If the taxpayer had a debt of 150,000 and the forgiveness debt is 150,000. If that 150,000 is bringing him to 0. Does the taxpayer had no debt and not insolvent with this 150,000 debt at all?

Also, to reduce the basis in the rental property, business property is a very promising route to take. This calculation has to be done.

He has adjusted basis of 110,000. We will try not to use 90,000, the fare value of the property as stated on Form 1099-C.

Part II.

a) Use Form 4797 for recapture of depreciation. Part III, lines 22 and 25.

b) Choose Section 1250 property. The numbers will show up in Schedule D after the summaries of Part III show up on part I. -- provided we click all correct choices in the software.

c) Use Schedule D, line 11 for long term gain/loss from Form 4797 and line 19 on page 2 for section 1250 property depreciation (gain) recapture.

Just make sure that the numbers we enter do not result in double count the gain and the depreciation recapture.

Regards,

Fiona

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