taxdan Posted March 22, 2014 Report Share Posted March 22, 2014 I have a client who received a 1099C for the cancellation of debt from the short sale of his principal residence in CA. This debt was not acquisition debt, therefore I believe it was recourse debt. (Refi'd and money pulled out over the years) The client is not filing bankruptcy and does not qualify for the insolvency rules. Is all of this 1099C income taxable to the client? If it was a non-judicial foreclosure instead of a short sale, would that have made it nonrecourse debt and therefore not taxable? And finally, if it was nonrecourse debt due to being a non-judicial foreclosure, would I use the 982? I don't see any of the provisions on the 982 that would apply. Thanks for any input. Dan Quote Link to comment Share on other sites More sharing options...
David1980 Posted March 22, 2014 Report Share Posted March 22, 2014 Short sale, principal residence, California. The IRS information letter from 9/19/2013 might be relevant. https://www.ftb.ca.gov/aboutFTB/newsroom/Mortgage_Debt_Relief_Law.shtml http://www.irs.gov/pub/irs-wd/13-0036.pdf Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 22, 2014 Report Share Posted March 22, 2014 Or it might not. The letter is being challenged because it doesn't make much sense. Quote Link to comment Share on other sites More sharing options...
taxdan Posted March 23, 2014 Author Report Share Posted March 23, 2014 Thank you for those links. Even though the letter is being challenged, I have to currently go with 1099C income due to short sale as not taxed as cancellation of debt, but as realized gain on the principal residence subject to Section 121 exclusion. I plan to report the sale on Sch D, but any idea as how to handle reporting the 1099C income on the tax return? Quote Link to comment Share on other sites More sharing options...
David1980 Posted March 23, 2014 Report Share Posted March 23, 2014 Or it might not. The letter is being challenged because it doesn't make much sense. There's always things being challenged. Which is why we have things like protective claims. Ultimately at the time of preparation you have to go one way or the other. If it's in the taxpayer's favor, why would you not follow IRS guidance? Quote Link to comment Share on other sites More sharing options...
taxdan Posted March 23, 2014 Author Report Share Posted March 23, 2014 I'm still not sure if I should use the 982 to address the 1099C income as insolvency doesn't apply for this client. It is also not qualified principal residence indebtedness as he has refi'd and pulled money out over the years. I appreciate all the help! Dan Quote Link to comment Share on other sites More sharing options...
joanmcq Posted March 23, 2014 Report Share Posted March 23, 2014 Some may still be qualified personal residence indebtedness if he would still have been paying on his original loan. Quote Link to comment Share on other sites More sharing options...
taxdan Posted March 23, 2014 Author Report Share Posted March 23, 2014 I will check into that. Thank you! Quote Link to comment Share on other sites More sharing options...
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