1099A-Recourse Rental Property - Divorced Tax Payers

[Gloria]

Divorced taxpayers had a rental that was foreclosed. The home was rented for about 10 years thru December 2007; the X-husband took possession of the home in January 2008 and lived in it for a year and a half and then let it foreclose. The home remained in the names of both taxpayers and they both received a 1099-A from Chase Bank. The female taxpayer wants to report her share of the gain on the disposition of the rental property. The house has not been a rental since December 2007. What would be the best method of reporting the taxpayer's share of the gain on the disposition? Would I use Form 4797 and select that it was a rental? How would I report her share only without it creating problems for her if her X-husband does not report his share? She brought me the 2007 tax return which was the last year they filed together. Also am I calculating the basis correctly based on the instructions for determining gain or loss on foreclosure for recourse loans? THANKS IN ADVANCE FOR YOUR COMMENTS.

Determining Gain or Loss on a Foreclosure

For recourse loans, the figure used as the selling price is the lower of the following two amounts:

1) the outstanding loan balance immediately before the foreclosure minus any debt for which the borrower

remains personally liable after the foreclosure; or

2) the fair market value of the property being foreclosed.

INFORMATION FROM 1099A - RECOURSE

Balance of Principal Outstanding -- 99,137.87

FMV - FROM 1099A -- 47,000.00

CALCULATE BASIS - LOWER OF THE 2

FMV 47,000.00

LOAN BALANCE 99,137.87

LESS FMV (47,000.00)

BALANCE 52,137.87 PERSONALLY LIABLE--IS THIS THE WAY TO CALCULATE?

FMV IS LESS 47,000.00

ADJUSTED BASIS (34,160.00)

GAIN-100% 12,840.00

[LindaB]

I think first you need to find out for sure what happened to the property in the divorce. Did the bank use the full amounts on the 1099-A sent to each of them? If you're going to use half of those figures on your clients tax return, you want to make sure it's right.

You're on the right track for figuring the sale of the property, but you also need to find out about the canceled debt, from your numbers it's about $52K. Is the bank still trying to collect that, would they try to collect it from either of them or half from each? Or is the bank finished with it and not going to try to collect? Get all of the information first, file an extension for her if you have to.

[Gloria]

I think first you need to find out for sure what happened to the property in the divorce. Did the bank use the full amounts on the 1099-A sent to each of them? If you're going to use half of those figures on your clients tax return, you want to make sure it's right.

You're on the right track for figuring the sale of the property, but you also need to find out about the canceled debt, from your numbers it's about $52K. Is the bank still trying to collect that, would they try to collect it from either of them or half from each? Or is the bank finished with it and not going to try to collect? Get all of the information first, file an extension for her if you have to.

Thanks Linda. In the divorce papers the property was allocated 50-50 as they were going to sell it; however, that did not happen. The X-husband lived in the house for about a year and a half before it foreclosed. They both received a 1099-A for the same amount (100%). Since it is a recourse loan I thought that the bank would try to collect first and if they cannot they would issue a 1099-C at a later time or attach a lien to her residence or who knows what else.

What is your experience on recourse loans? Do most banks take the individuals to court to try to recover the diffence owed? If the client calls the bank, will the bank tell her if they are thru and if the debt has been cancelled? They have not received any other correspondence from the bank. The foreclosure took place in June 2009. Thanks again.