Anyone With Rental Foreclosure(s) Delcare Insolvency With IRS?

[FU2MI]

Looking for some info here..

I have 3 rental properties going into foreclosure that i'm preparing for 1099C's on (my main residence is also going into foreclosure but that is of no concern as the forgiveness act covers me).

Has anyone declared insolvency with the IRS with regards to the 1099c's they recieved on their rental properties? My debts greatly outweigh my assets, so that isnt a problem, i'm just looking for someone with experience regarding it.

thanks!

[outofluck07]

Rental property foreclosure

If you are filing bk, the entire mortgage/shortage is forgiven, and you will not receive 1099s.

[brokenbuthealed]

I had one rental property that was foreclosed on in 2008 and I didn't get a 1099 for it. Although I haven't talked to a tax professional about it, on my properties I did not have any equity and once they get sold at the sherriff's sale it will more than likely sell for less than what I paid for them. In that case the capital loss that I take on the properties should offset any income from forgiven debt.

[JoeBankrupt33]

I foreclosed on a rental property last year. I got a 1099A, but no 1099C because the fair market value (as listed on the 1099A) of the property was greater than the outstanding principal balance.

This is a very tricky tax situation, though. You still need to report the sale of the rental property.

Here's how mine went down:

Sales Price: $122,744 - this was the outstanding principal balance listed on the 1099A.
Cost or other basis: $138,659 - this was my purchase price + cost of improvements (not repairs)
Depreciation - $22,047 - You need to list the amount that you could have depreciated whether or not you actually claimed the depreciation.
Adjusted Basis = Basis - Depreciation = $116,612
Total Gain = Sales Price - Adjusted Basis = $6,132

Because I had the rental home for more than a year, this was taxed as a long term capital gain.

So, although I didn't walk away with any money, I still had to pay tax on it. If there had been cancelled debt with the transaction, I could have claimed insolvency on that part.

Good luck guys!

[Catia]

FU2MI--
Did this occur/are you in BK???
That's the biggest question here.

If you include these houses in BK--there is no need to claim insolvency.


In the middle of me prepping for BK, my mortgage was forgiven, so for 2008 I did not file BK, but I will be claiming insolvency on my taxes for 2008.

here's the basic jist of it:

Basically if you do NOT file BK, and your assetts are much less than your debts you can claim insolvency with the IRS. Your debt will be not counted as income to the extent to which you are insolvent at the time of the cancellation of debt. You will however pay tax on the amount that your forgiven debt has put you in the positive. But insolvency can lessen this burdon tremendously.

I can give more info & links to the proper form and instructions if needed--let me know.

[Catia]

helpful link in plain language with a form to help determine if you are insolvent and to what amount.

http://www.lsnv.org/Debt_Cancellation_Vignette.doc