LindaB

At any rate, you can find all the updated codes in Pub 1346.

http://www.irs.gov/pub/irs-utl/ty08_pub_13..._attch_1_11.pdf

1345 for some reason has been neglected since 2005.

Thanks for this link, I've been using the same 1345A for a few years but figured I'd have to update it some time.

Hi:

I received from a client a 1099a and 1099c for a foreclosed property with the following information:

1099C box 2 = $49,722 (Amt of debt canceled)

1099C box 7 = $84,000 (FMV)

1099A box 2 = $111,921 (Balance of principal o/s)

1099A box 4 = $84,000 (FMV)

1099A box 5 checked YES (personally liable)

Thanks!

If these two are for the same property, this doesn't seem right. The 1099-A is showing the transfer of the property, would be reported as a sale, and does not show any COD income. The 1099-C should be showing COD income, but it would be the amount by which the debt canceled is greater than FMV, so it's not showing any COD since box 2 is less than box 7. I don't know for sure, but it appears that there were two loans secured by the same property, and by reporting it this way they have used the same basis twice. Are the dates on the 1099-A and 1099-C about the same?

"Also, on form 982, since I have box 1e checked, atx won't let me create the E-File unless I fill in box 10b. What figure do I put here if IRS states that if person did not keep the property after abandonement, this is not applicable?"

There was a form update for from 982 yesterday that may have caused this. You're right, if they don't still have the property then they can't reduce the basis in it. I think this is something that ATX will have to fix.

The client shouldn't have gotten a 1099-A and a 1099-C on the same loan. Is one for a primary mortgage and one for a home equity loan?

I got this from the IRS:

Tax Provisions in the American Recovery and Reinvestment Act of 2009

http://www.irs.gov/newsroom/article/0,,id=204335,00.html

If you look all the way at the bottom, there is a link that gives a summary of the whole thing from the Senate Finance and House Ways and Means committees that you might find interesting.

If they give you something with the reject code that is 'seq 175' or 'SEQ 175' it tells you which child it is. First dependent listed on the return is 175, second is 185, third is 195. (These are field sequence codes in pub. 1345A) If someone else has claimed one of the children and they are entitled to claim them all, they will have to mail the return.

"I entered the amount in box 4 of the 1099-A as miscellaneous income on line 21 of the 1040 then, since they filed for bankruptcy I entered the same amount of line 2 of Form 982 to reduce the taxable portion to zero."

You don't want to do this. The purpose of the form 982 is to list COD income so you don't have to list it as ordinary income on line 21. And the entry on form 982 would not take away the income shown on line 21. Besides, a 1099-A is not showing any COD income, so neither line 21 nor form 982 would be relevant. The 1099-A is showing a disposition of the property, which is entered on the tax return as a sale of the property.

The client might want to think twice about having HRB amend the return. If they screwed it up the first time, they could certainly screw up the amended return. And it sounds like there still needs to be an OH return done. Is the wife in TX, and the mother, with the POA, in OH? No, don't let HRB try to fix this.

You noticed that the taxpayer was in bankruptcy?

See Section 108.

No, I wasn't paying enough attention. If the property was turned over to the bankruptcy estate, then the client wouldn't report anything on his personal return?

Client gave up rental home in bankruptcy at the end of 2008.

I am trying to reflect this in the ATX asset manager disposition tab. The disposition is showing a loss because there is no sell price.

There shouldn't be a loss since the client is being relieved of the mortgage in the bankrutcy, should there?

How should the disposition be done in the asset manager?

On a related issue - the client hasn't received a 1099-C or 1099-A for this. Since the bankruptcy was filed in 2008, shouldn't a 1099 been received? Or do these tend to be issued the following year?

If a 1099 is issued in 2009, would the adjusted basis of the property be taken against the cancellation of debt income in 2009?

Thanks.

The selling price would be the lesser of the amount of debt canceled or the FMV. He was relieved of the mortgage, but was also relieved of the property. It's treated as a sale and there could be gain or loss since it was a rental property. He should at least get a 1099-A to show the transfer of the property.

Th 1099's you refer to are not issued when the client is in bankruptcy.

Tell ATX not to compute gain/loss.

Why would he not show a gain or loss on a rental property?

I have a couple of clients who actually went out and purchased a second home knowing that they would be letting the other home go. They moved into the new home, stopped making payments on the old home, the hold home was foreclosed and the 1099's were issued.

It is my thinking that because they already purchased and moved into another home that the exclusion for having to include the foregiven debt as income would not fly under the provision of foregivess of indebtedness of primary home. Am I correct in my understanding of this?

I can easily show insolvency as both homes have lost a lot of value since they were purchased and on both of these homes there is more owed than they were worth at the time the debt was foregiven on the first home.

Any thoughts! (as to the morality of what they did, I don't agree or approve of it, but that's really not my business. I am only concerned about the tax ramifications.)

Deb!

Yes, I agree with you on this. Under 'qualified principal residence indebtedness' it says you can have only one principal residence at any one time.

First determine if gift tax returns are necessary. See:

http://www.irs.gov/pub/irs-pdf/p950.pdf

taxbilly

In one case the woman bought a house and gave it to her daughter, or rather the lawyer set it up so that she sold it for $1 to her daughter. The woman was married then, but even if she and her husband split the gift and gave it to the daughter and son-in-law, it would have been over the annual limit. In another case the woman had loaned money to her son to start a business, he made payments including interest, but later she forgave the remaining debt, which was over the annual limit. There may have been other gifts over the annual per person limit, but I doubt that the total gifts would go over the lifetime $1,000,000 exclusion.

If I recall correctly, the account has to be fully distributed prior to claiming losses.

Julie

All of his Roth IRA's have to be distributed in order to claim a loss.

Elderly widow wants to make a gift of some jewelry to her daughter and granddaughters. The issue of a gift tax return came up while she was discussing this with her son, who will be the executor of her estate. Evidently this elderly woman does not understand the need for a gift tax return, and as a result of further discussion it seems that she has given gifts in the past that should have been reported on gift tax returns, but were not. If she were to pass away this year there would be no estate tax (under the limits), and in 2010 estate tax is no more, but if the estate tax returns in 2011 under the old limits, her estate would be taxable. I believe that is when lifetime taxable gifts would be relevant.

I don't do gift or estate returns myself, so I hope I don't sound totally stupid about this, but my question is this: What would you do about gift tax returns that should have been filed in the past and were not?

"I have several clients who have only been issued a 1099A and not a 1099C (yet). A couple of these are clearly marked as my client not being personally liable for the loan. One is marked that they are personally liable for the loan."

I'm a little surprised that an individual would have a nonrecourse loan. When I did some research a year or two ago it seemed that nonrecourse loans were generally only used for commercial loans. But I guess they would write nonrecourse mortgage loans if they thought the value of the property would always be more than the loan.

"With the ones that are marked not personally liable, will a 1099C follow when the home is resold by the lender?"

They should not get a 1099-C for a nonrecourse loan.

"Do I handle the 1099A as a sale using the amount that was owed on the property as the sales price and then apply all the other info regarding a sale of personal residence?"

Yes

"(most of my cases have been showing a profit as they owed more on the loan as reported on the 1099A than what they originally purchase the home for, however because it was their personal residence for at least 2 out of the last 5 years they qualify for the exclusion)"

Since you raise the point that some of these loans were for more that what they paid for the house, in the case of a recourse loan where there is or might be COD, you would need to know if some of the loan was used to pay off credit cards or for anything else besides buying or improving the house. To be able to exclude COD income for 'qualified principal residence indebtedness' it can only be the part of the debt for the home. I don't mean to confuse things here, what I just said applies to COD income that might be excluded on form 982, not the gain from showing the sale.

"Is that all I need to do for the 1099A's and what happens if in 2009 they receive a 1099C for these non-recourse loans?"

They shouldn't receive a 1099-C for a nonrecourse loan. If they do, then the lender was confused. I think the only thing you can do now is put in preparer notes that the taxpayer received a 1099-A, and then assume they won't get a 1099-C and then not think about it anymore.

"What about the 1099A that shows homeowner is personally liable for loan but no 1099C has been issued? Do I still report the sale (abandonment) on the Schedule D sales of personal residence? Then deal with the 1099C when and if it issued?"

Yes, that's all you can do now. As RoyDaleOne indicated in his post, the lender still has the option of trying to collect the amount of the loan that wasn't satisfied by the property. You may want to put in preparer notes that this is a recourse loan, so that you're not surprised if they get a 1099-C later.

"Will I have to go back and ammend the 2008 when the 1099C shows up for tax year 2009?"

No, you wouldn't want to amend 2008, you would include it on 2009, whether it had to be included as ordinary income or could be excluded on form 982.

"I have a slew of these as I live in a part of the state that is hardest hit with foreclosures and any suggestion would be greatly appreciated!"

Just look at each case individually because there isn't a 'one size fits all' answer for how to deal with these.

Like I said I am so confused. I have read and read and read up on this, and the more I read the more confused I get. And yes both of these clients apperantly have non-recourse loans as the box is marked that they are not personally liable for the loan.

If it's a non-recourse loan, there will be no COD income. A 1099-C doesn't have a box to check for recourse or non-recourse, because the 1099-C is reporting COD income, so it must be a recourse loan.

Client #2 only received the 1099A so am I understanding this right that I only need to report the sale on schedule D? He does satisfy the section 121 exclusion, has he had lived there 2 out of the past 5 years. He barely met the exclusion as he moved in December of 2006, kept both places for 2007 but lost the first one in April of 2008. He says he has not received a 1099C, so am I correct in only doing the schedule D. What if the 1099C comes in 2009?

Yes, with a 1099A you only need to report the sale. In this case, since it is a personal residence, any loss is not allowed, and any gain excluded under sec. 121, you could not report it on sch. D (not report it at all on the tax return), but I would at least make preparer notes in the program describing the 'sale.'

If the client gets a 1099C in 2009 you will try to exclude the COD income either because it was a principal residence or because of insolvency, using form 982.

I have about five clients whose homes have been foreclosed upon. The first one was only given a 1099C, so I filled out the fom 982 and as this was a qualifying residence I took that exclusion. My question with this has to do with the reduction of tax attributes. She does not have her home any longer and the only real asset she has is her car which she probably owes more on than it's worth. Do I need to fill out anything for the reduction of tax attributes, or do I just leave this blank?

In the instructions for form 982 it says that if the discharged debt you are excluding is from qualified principal residence indebtedness.......if you continue to own your residence after the discharge, enter on line 10b [reduction of tax attributes section] the smaller of (a) canceled debt or ( basis. So I assume that if you don't still own the home, you don't have to use line 10b.

"I have my first bankruptcy client. I know the the debt cancellation is not taxable ...."

If you look at form 982 line 1a is for 'discharge of indebtedness in a title 11 case' and I don't know if it will work for chapter 7 bankruptcy.

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"Form 982 seems to be more of an informational form as it does not eliminate the capital loss co on the worksheet."

There is a place in the ATX program to include a statement for part 2 of form 982 (tabs at the bottom of the page for form 982), I guess to describe reduction of tax attributes, but I can't see how it would carry over to anything else. I guess you would have to do it manually.

I guess my mind just isn't working today. I have tried saying these out loud fast, I've tried saying them out loud slowly, and nothing clicks. I won't be able to get any work done until someone explains this to me. I'm probably the only one in the world that doesn't get it.

Star Wars---droids

I e-mailed support and received a reply in less than 24 hours that simply stated that it was in progress but that they had no time frame as to when it will be approved!

Deb!

There was an update for form 982 within the last hour, it is ver. 44 and shows 'approved'. I updated, but still can't create the efile for a return with that form. ??? IRS site shows it was revised 2/09 and posted 2/10/09.

Have a self-employed client who put 10,000 in his SEP when only about $6500 should have been allowed and is deductible. I think I should just take the allowed amount on page 1 of the 1040. Is he allowed to get the rest back? Should I handle this any differently? I told him last year that he should wait until his taxes are done to get the amount from me but he thinks that is too complicated.

Thanks,

Julie

He has to take the excess contribution or there will be a penalty. He also needs to withdraw any earnings on the excess contribution. Yes, use the allowed amount as a deduction on his 2008 return. How the withdrawl is handled will depend on whether he does it before the due date of the return, or after. See pub 590 for details. It is a little more complicated than waiting.

I don't see why she couldn't participate in this. Normally employer contributions are not taxable, but I don't know if this would be true for a retired employee. It seems that if the employer had to give her the money as taxable, then she could deduct the contributions on her tax return so it would be a wash.

Have you looked at pub. 969? I don't know for sure the answers to your questions, but at least this will move your question up and maybe others will answer.

It looks like you have to use the origianl gross profit percentage to figure the basis. In this case, with outstanding loan of $50057 and FMV of $42000, if the gross profit percentage is 0.161, there would be neither gain or loss on taking back this property. If the gross profit percentage is higher--ie. 0.2-- then there would be a gain. Probably not what your client wants to hear.

Was this an installment sale? If it was, did your client continue to report the income on form 6252, and use the the gross profit percentage from the original sale?

In pub. 537 Installment Sales it says:

A disposition generally includes a sale, exchange, cancellation, bequest, distribution, or transmission of an installment obligation. An installment obligation is the buyer's note, deed of trust, or other evidence that the buyer will make future payments to you. If you are using the installment method and you dispose of the installment obligation, generally you will have a gain or loss to report.

And later it says:

If you dispose of the obligation in any other way, [other than to sell or exchange it] your gain or loss is the difference between your basis in the obligation and its FMV at the time of the disposition.

The only problem I see in taking the loss is in determining the basis.