LindaB

If the client abandoned the property, I think that it is going to be reported as a sale either on his personal return if the property is not part of the bankruptcy estate, or on the return for the bankruptcy estate itself if the property is part of the bankruptcy. If it's on his personal return, you can't get rid of any gain or loss because of the bankruptcy or because of insolvency. I'm not sure, but I think that if the sale is reported on the bankruptcy estate the gain or loss would pass through to the individual. What you can exclude because of bankruptcy or insolvency is the ordinary income from the cancellation of debt. That's not the same as gain/loss from the sale. I wonder if this is a nonrecourse loan, and that's why the bank said it can't go into the bankruptcy--for a nonrecourse loan there would be no cancellation of debt income anyway. Or maybe if the client abandoned the property before filing for bankruptcy, he lost the option of transfering the property to the bankruptcy estate. I hope your client will find out from his attorney what's going on with this bank before he signs anything from the bank. Big banks have too much power.

The problem with this scenario is that the loss on the 4797 goes to sch. D and is a capital loss, limited to $3000 a year.

It is a 1099-A so there is no COD income to worry about, also the FMV is more than the loan amount so no COD. Report it as a sale using client's basis and the loan amount as the sales price and the date on the 1099-A as the date of the sale.

I think you should accept that it 'is what it is.' The way it's reported there is no COD income. Just report the sale. It could have been reported on a 1099-A as David1980 said, but it seems that in many cases lenders use a 1099-A when it is nonrecourse debt and a 1099-C when it is recourse debt. That's just the impression I have gotten over the last few years from following the questions on these.

You don't know if there is gain/loss until you look at the client's basis, but shouldn't matter if it's a personal residence.

Thanks for letting us know, Booger.

Are you including the $119,000 debt when you look at insolvency?

Thanks for the link, KC. I don't feel strongly about the estate tax one way or the other, but I would sure hate to see the step-up basis on inherited property go away. That would a tax increase on lots of taxpayers.

There's no COD with a 1099-A so you don't have to use form 982, just show the sale.

(Not exactly related to this discussion) Unless lawmakers change it, the estate tax is set to disappear in 2010, then reappear in it's original form in 2011. When the estate tax disappears in 2010, I believe the stepped up basis also disappears. So if a client inherits property in 2010 and sells it, you can't tell them their basis is the FMV at the date of death, it will be the basis of the deceased.

No, you still have to report it as a sale, show any gain or loss.

In pub. 537, page 3 there is an example of reducing the selling price. On the same page there is worksheet B to use to recalculate the gross profit percentage. It doesn't say to amend, but to recalculate for going foreward. I didn't look further to see if this would also be true if there is now a loss.

This doesn't really answer your question, but is a comment. If he has reported gain of $4502 over several years, he actually would have received more because part of each principal payment is gain and part is return of capital. In other words, the 'new' price is $15,000 plus $4502 plus return of capital over the several years.

There was some discussion on this on the old ATX message board, I think. It seems like the consensus was that the 1099 showing truck rent was actually reimbursement for his travel expenses, so he would have to list actual expenses on form 2106 and show the 1099 amount as reimbursement.

I have this same thing, and have also tried to set it in preferences.

Maybe Booger could find out from the client if his outstanding loan was roughly $11,800 or $25,300, and then let us know here. I know I would appreciate it.

According to the instructions for 1099-C: Box 2. Amount of Debt Canceled Enter the amount of the canceled debt. See Debt Defined on page 3 and Exceptions on page 3. Do not include any amount the lender receives in satisfaction of the debt by means of a settlement agreement, foreclosure sale, etc. and Debt Defined from page 3: A debt is any amount owed to you including stated principal, stated interest, fees, penalties, administrative costs, and fines. The amount of debt canceled may be all or only part of the total amount owed. However, for a lending transaction, you are required to report only the stated principal. Where in this does it say to make the box 2 amount the difference between total loan and FMV?

Sales price would be $11,810. From part 2 of table 1-1 in pub. 4681. Agree with RoyDaleOne, no COD income.

The $400 credit is calculated as 6.2% of the first $6452 of wages (or earned income?), so I assume someone has to make at least $6452 to get the entire $400. Say that someone makes $7000 for the entire year, spread out at $134.62 at week, will file single and with only his own exemption. Under the old withholding tables, he would have $1 a week withheld in federal tax. With the new withholding tables, he will have zero withheld. If the employer starts using the new withholding as of April 1, he would have had $13 withheld for three months, then nothing for the rest of the year, so he gets $1 a week extra for 39 weeks. When he files his 2009 tax return, will he get his $13 in withholding, plus the $400 refundable credit, for a refund of $413? Low wage earners will not get the benefit of this credit spread throughout the year.

I was just going by this from the IRS: For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee's 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return. It seems to me that if the employee is going to report on his tax return how much of the credit he received, the employer will have to tell him.

I think the $396 from your example here does not represent income tax, but the refundable credit, so the amount of income tax withheld will not have changed. From the little I've seen so far, it looks like the employer will have to tell the employee (on the W2 ?) how much of the credit they were paid during the year, because the taxpayer will have to include on the 2009 tax return how much of this credit they received during the year. I haven't seen anything that addresses what will happen if a taxpayer, or taxpayer and spouse, receive more than $400/$800 during the year. What I've seen so far is pretty vague, but I can't help thinking it's going to be a mess for those doing payroll. http://www.irs.gov/newsroom/article/0,,id=204447,00.html

The Federal Reserve is privately owned, not controlled by the government, but made to seem like it is. I think Ron Paul is the only one in government who knows what's going on.

You're right that they will have to pay tax on the money if they convert from traditional to Roth IRA. Take a look at pub. 590 for all the details, as there are income limits to be able to do this. They might want to consider that if they will be in a lower tax bracket when they retire and take the money out, it might not make sense to pay tax on it now, when in the future they wouldn't have to pay tax on it anyway, even if it was still in a traditional IRA.

If it's true that there is just one property with a FMV of $84,000, with a first mortgage of $111,921 and a second mortgage of $49,722, then I think the 1099-C should not have shown the FMV of $84,000. Then the $49,722 would be COD income that you might be able to exclude on form 982. If this second loan was not used to buy, build or improve the property, you can't use the exclusion for principal residence (form 982 line 1e). You would need to try for insolvency. (At least then you wouldn't run into the problem of the program wanting you to reduce the basis of a property he no longer has.) Find out from the client if there was one property with two loans, and if the smaller loan was used to buy, build or improve the property, or used for something else.

The reason I asked about the dates was to see if the 1099-A was earlier in the year (lender took over property) and the 1099-C was later (lender disposed of property). If that were the case (different dates) then it wouldn't have been reported correctly. With the same dates, I think there must be a primary mortgage (1099-A) and secondary mortgage or home equity loan (1099-C). If this is true, I still think the 1099s are not correct. The 1099-A is showing that the $84,000 FMV of the property is being used to satisfy part of the debt on the loan with a balance of $111,921. If there is another loan with a balance of $49,722, then the same $84,000 cannot be used to satisfy that debt. With the way these 1099s are prepared, you would use the 1099-A to show the sale of the property, using $111,921 as the sales price. The 1099-C is not showing any COD income because it shows that the FMV of the property is more than the debt, so you wouldn't have to do anything with it. But this is where I think it is not correct, because they have already used the $84,000 FMV to satisfy part of the other debt. Sorry if I'm not explaining this well. Were there two loans on the same property? The way the lender prepared the 1099s it looks like there are two properties, each with a FMV of $84,000.