"Kirk Carpenter" <kir...[at]cox.net> wrote:

- quote -

Sales proceeds (cash received + debt forgiven) - basis
(acquistion costs + capital improvements - depreciation
allowed or allowable) = Gain or Loss

Losses on personal use property (such as a personal
residence) are not deductible.

*************************

In this case, so long as the mortgage, or other debt,
secured by the house was recourse (i.e., it was a personal
liability of the owner), the amount of debt forgiven by the
creditor is not included in the amount realized (i.e., the
sales price). Instead, that amount will be treated
separately and, to the extent not excluded under Code Sec.
108, will constitute ordinary income. See Treas. Reg.
1.1001-2.

The reason for this is that the owner of the house is
treated as paying off part of the debt with the FMV of the
house; however, because the debt is a personal liability,
the transfer of the house does not extinguish the remainder
of the debt, which continues to be a personal liability of
the owner. If the creditor then forgives or discharges the
remainder of the debt, that is a separate transaction in
which the debtor/owner will recognize income from the
cancellation of indebtedness unless that amount is excluded
under Code Sec. 108.

Thus, the amount realized (i.e., sales price) on disposition
of the house in foreclosure is the fair market value of the
house, plus any cash and the FMV of any property received by
the owner.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Shyster1040 <Shyster1040[at]nospamhotmail.com> wrote:

- quote -

I don't understand that.

He never *received* the $200,000, so why is that "realized"?
He *received* $50,000 worth of debt cancellation, plus any
cash actually received after the foreclosure.

- quote -

That says that if the FMV were _under_ $50,000, then the
difference between FMV and $50,000 is COD income; that isn't
the case here.

Seth

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Kirk Carpenter" <kir...[at]cox.net> wrote:

- quote -

Sales proceeds (cash received + debt forgiven) - basis
(acquistion costs + capital improvements - depreciation
allowed or allowable) = Gain or Loss

Losses on personal use property (such as a personal
residence) are not deductible.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Your amount realized (or, as you call it, "sales price") is
$200,000 - the fair market value of the property foreclosed
on - plus any cash you received. The $50,000 of debt
cancellation income reported to you on Form 1099-C is
handled separately and is not treated as part of the amount
realized on disposition of the property. See Treas. Reg.
1.1001-2.

See also the following IRS FAQ(skip the first paragraph and
start with the section headed "Why is it that I may have
both gain (or loss) and COD income upon foreclosure of my
house?":
http://www.irs.gov/faqs/faq4-4.html

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

- quote -

It depends on whether the loan is a recourse loan or not.
They are treated slightly differently. See pub 544 "Sales
and Other Dispositions of Assets", there is whole section on
foreclosures.

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Kirk Carpenter" <kirkc1[at]cox.net> wrote:

- quote -

Foreclosed properties are generally sold at an auction. The
lender generally bids the amount remaining on the loan and
that's often the highest bid. It doesn't mean that's the
value, however.

But if the property was foreclosed on, there really isn't
any cancellation of debt income, since you gave something in
exchange for it that should have had a basis higher than the
amount owed.

I'm not an expert on this, but it seems to me that you only
have gain if your basis was less than the amount left on the
loan, to the extent of the difference between those two
amounts. Or if the property is sold at auction for more
than what is owed to the bank, you may end up with money in
your pocket so there may be taxable income in that case.

You really need to talk to a local tax pro, who can properly
analyze your specific situation.

Stu

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

"Kirk Carpenter" <kirkc1[at]cox.net> wrote:

- quote -

Anyone? Help please.

Kirk

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >

Would like to ask how to establish a sales price (for the
purpose of determining gain/loss) on a foreclosed property?
1099-C lists amount of debt cancelled as $50,000.00 and Fair
Market Value as $200,000.00. Thanks.

Kirk

<< ================================================== ===== > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ================================================== ===== >