1099A - has not recieved a 1099C - NOL?

[BulldogTom]

I am double checking because I don't think this is the result I should be getting.

Client worked in Las Vegas. Bought a home in 2006 (yes back when Vegas was a HOT housing market). In 2007 company relocated them back to CA. They rented out the home in Vegas until late in 2008. The tennants moved out and they could not find another renter. The mortgage was too much with no income and in June of 2009 they walked away from the home. Lender has issued 1099A but no 1099C. Purchase price 400k, loan balance 388K (no refi's) and FMV is 188K. Loan is recourse.

When I dispose of the rental property for FMV of 188K, I am generating a huge loss. This is creating an NOL for my client. Is this supposed to happen? Can I carry that back and grab some refunds for the prior years?

But the client tells me they are also insolvent because they are so upside down on the home in CA.

I don't feel right about this for some reason. I know it is a timing issue, but can I really get an NOL out of this.

Tom

Lodi, CA

[Lion EA]

Don't forget the depreciation reducing his basis.

[LindaB]

Wouldn't you use loan balance of 388K as sales price and his adjusted basis--400K purchase price adjusted for depreciation--for cost?

[BulldogTom]

<<Wouldn't you use loan balance of 388K as sales price and his adjusted basis>>

No. It is a recourse loan. The rules are clear that the sales price is the lower of the amount of the loan less the amount still owed by the borrower after the repossession or FMV at time of repossession.

<<Don't forget the depreciation reducing his basis.>>

Have taken that into consideration. It is still nearly a 200K loss. And since it is a complete disposition of the activity, it freed up the suspended passive losses we were carrying.

Anyone else have a comment? I still don't think that I should be able to get an NOL off of a timing issue. Had the lender sent the 1099C, I would have 200K of cancelled debt to go with the 200K loss on the disposition. I don't mind taking advantage of the tax law if I can for my client. If I can go back and grab some bigger refunds with the NOL, I will. I don't know if I am missing something here.

Thanks

Tom

Lodi, CA

[jainen]

>>I would have 200K of cancelled debt to go with the 200K loss<<

In my opinion, he still owes that much for the recourse loan. So either he validates his loss with $200K additional expense, or the lender givers up and sends him the C later, generating ordinary income.

[LindaB]

<<Wouldn't you use loan balance of 388K as sales price and his adjusted basis>>

No. It is a recourse loan. The rules are clear that the sales price is the lower of the amount of the loan less the amount still owed by the borrower after the repossession or FMV at time of repossession.

Thanks

Tom

Lodi, CA

What you say here is true IF you are also including and reporting COD income. The lender may be waiting until they actually sell the property to report the COD. It may take them 9 months to sell it, and they may only sell it for $150K, which would increase the COD reported.

(I don't think the rules are clear at all)

[joelgilb]

You might find that the lender walks away from the Recourse Loan. I am currently in Las Vegas, and am finding that this is a common occurrence here. Also, since Nevada is a Trust Deed State, if the lender doesn't follow certain procedure, they can not come after the borrower later, even on a recourse loan. And virtually all the lenders are failing to follow proper procedure here.

It is likely that he will receive the 1099-C next year or even in 2011 when the lender eventually sells the property for a Big Bath! I see this happen here routinely, unlike back in Illinois, where the lenders are still pursuing the deficiencies.

[BulldogTom]

I am kinda assuming the lender will walk away. But if they try to collect, my client is probably going BK.

Tom

Lodi, CA

[BulldogTom]

Interesting addition. The client called the lender (at my request) and asked the status of the 1099C or if the home had been sold. The lender stated that the 1099A is the only thing that will go out. They will not send a 1099C.

So do I treat this like a non-recourse loan now? Or do I treat it like the 1099A is the 1099C?

I am leaning towards treating it like a 1099C since I can figure the COD amount.

Any opinions?

Thanks

Tom

Lodi, CA

[kcjenkins]

The problems you mention are the reason I advise not reporting the 'sale' until there is a 1099-C. The 1099-A is basically advisory, but the FMV reported is often off by quite a lot. The IRS does not match based on the A, they do match on the C, so if you report it now, you are going to be dealing with CP2000s that are going to be a mess to deal with.