Form 982 flow-through

[jasdlm]

Client received a 1099C. (Sold house for less than what was owed against it; negotiated with lender for cancellation of remaining balance.) The house was client's primary residence.

I included the 1099C income on line 21. I completed form 982. The tax is still being calculated on the debt cancellation, and I can't figure out how to change it.

Sheesh. I feel really stupid, but somebody please help. This is my first 1099C and it's not going well!

Thanks in advance.

[LindaB]

Client received a 1099C. (Sold house for less than what was owed against it; negotiated with lender for cancellation of remaining balance.) The house was client's primary residence.

I included the 1099C income on line 21. I completed form 982. The tax is still being calculated on the debt cancellation, and I can't figure out how to change it.

Sheesh. I feel really stupid, but somebody please help. This is my first 1099C and it's not going well!

Thanks in advance.

I just quickly read through the instructions for form 982, and it looks to me like you just put it on form 982, and NOT also on line 21. It looks like you just mark box 1e and then put the amount of 'discharged indebtedness' on line 2. You may want to read through those instructions more carefully, to make sure your client qualifies for excluding this canceled debt.

[Pacun]

I agree, you don't enter anything on line 21 unless this was not his primary home and no need for 982.

I have a related question. Client owned and lived in a house for 2 years and 2 months. He purchased a second house and move to it. He rented the old house for 3 month and they he walked away from both houses. He lived about 6 months on the new house. On both houses, he will get a 1099-C showing that he had debt cancellation. On the first house, he didn't report a gain because he used the 2 year exclusion because it was his primary residence. This year's Sch D shows a profit on the older house which is wiped out by the exclusion and a personal loss on the new house, which is not deductible.

My question is, which house will he use for form 982 since he will get a debt cancellation for both houses?

[jasdlm]

Thanks so much, Pacun and Linda. I read the instructions for the 982 but still wasn't confident that I didn't need to report the debt cancellation on the 1040. I appreciate your confirmation.

[LindaB]

My question is, which house will he use for form 982 since he will get a debt cancellation for both houses?

In the inst. for form 982 it does say that a taxpayer "can have only one principal residence at any one time." In a tax tips from IRS it said that this exclusion is only good for a taxpayer's principal residence, and not for a second home. This doesn't exactly address your situation, but I'm inclined to think that if the TP used the 121 exclusion of gain on the first house, then he was saying that the first house was his principal residence, so he couldn't turn around and say that the second house was his principal residence for the cancelation of debt.

You could also look at insolvency and check box 1b (form 982) if the TP was insolvent, that would probably be more beneficial. I couldn't find on the form any requirement to add a statement proving insolvency, just check box 1b and include the amount on line 2.

[Pacun]

Thank you Linda.

In my client's situation, it doesn't matter which house he can use on 982 because he will get a 1099-C for both. The difference between one 1099-C and the other will be about $2K, which is not much.