Loss from rental in a Bankruptcy case (Chapter7)

[Lucho]

After clients (couple) went through bankruptcy (Chapter7) , the bank sent a year 2013 1099-A showing the following:

Box 1 03/11/13,

Box 2 $182,887.12 Balance of principal outstanding

Box 4 $148,750.00 FMV of property

Box 5 Taxpayers personally liable for repayment of the debt.

Combining the amount of box 2 with the adjusted basis of the property (improvements and land), the taxpayers (my clients) have a loss of 21,000.00+. Line 14 Form 1040 is showing the loss

This was a rental property all the time my client owned it.

Am I in the right track with this return? or is there anything else I need to consider because of the bankruptcy issue?

I would appreciate any help.

Lucho

[Jack from Ohio]

You have to dispose of the property. Form 4797. This is NOT forgiven debt. That is form 1099-C.

The selling price is the amount of debt forgiven. Basis is calculated as normal. Depreciation is recaptured as well.

Box 4 has no relevance. There may be taxable gain by disposing of the property.

[Lucho]

You have to dispose of the property. Form 4797. This is NOT forgiven debt. That is form 1099-C.

The selling price is the amount of debt forgiven. Basis is calculated as normal. Depreciation is recaptured as well.

Box 4 has no relevance. There may be taxable gain by disposing of the property.

Jack, This is what I have done:

I disposed of the property in the disposition information of fixed assets worksheet.

The basis of property when placed in service was $178,600 less depreciation of $40,496 (which I believe will be the recapture) gives a new adjusted basis of $138,104 at the time the bank took possession of the property; the basis for the land is $65,900.

Adjusted basis of the house $138,104+$65,900(adjusted basis of land), gives a total basis of $204,004.

$204,004.00 property adjusted basis

$182,887.00 Amount shown in box 2 form 1099-A

$21,117.00 Loss

This is how I get the loss.

What do you think? Jack.

Thank you very much for your advice.

Lucho