Federal income tax consequences on foreclosure that was primary home then rental property?

Question

Here is the scenario:  A condo was purchased in 2007 as a primary residence for $215,000 using a loan of $195,000.  After living in it for a year, the buyer got married and moved in to the spouse's home.  Since the resale market was terrible, she rented it out to a tenant for about 18 months.  Because the rent was lower than the costs of the mortgage, eventually she fell behind, and lost the house to foreclosure.  The fair market value of the condo at foreclosure was about $150,000 (much less than the original purchase price and much less than the balance owed on the loan).

The foreclosing lender has not yet sent a 1099-C, and has not pursued the buyer for the deficiency yet, and I am not sure if they will.  However, if they do send a 1099-C, can anyone provide advice as to whether or not this cancelled debt is reportable as income.  If it might qualify for an exemption where can I research the rules for this?

I don't this condo-buyer is unique in this situation, but what I can find on IRS.Gov only addresses primary residences (which this was not at the time of foreclosure) and business/rental property.  I can't find anything on a hybrid of what was primary residence and became rental property.

Thanks in advance for any advice and help.

Cathi K · Accepted Answer

Its now rental, not a hybrid. Usually 1099c's can take an extra year to come. They are reportable in the year they come. Since it is a rental it is reportable income.  I think you can still do a 982 for insolvency but not sure for rentals. Good luck.

? · Answer

NO! there is not any artwork around, in need of merchandising it (at a loss), which you probably did no longer do. You owe the whole $8000 lower back on the 2011 tax return. you mustn't have fairly any start up expenses on a condo. You *do* ought to get an appraisal of what the valuables became properly worth on the time you switched over to condo materials as your foundation for depreciation is the lesser of your fee foundation or the FMV on the time. (Any loss that befell collectively as you lived in that isn't any longer deductible.) If the time table E exhibits a loss, and in the experience that your earnings isn't too severe, a loss on E ought to convey your taxable earnings and tax down.

Judge Julie · Answer

This is a very complex tax question and requires a professional to answer it - no free advice here! (remember - you get what you pay for)  I don't think you even qualify for a 1099-C - as this condo purchase comes under a lease agreement rather than a purchase or mortgage.

? · Answer

Because there is no such thing as a hybrid.  As a rental she was supposed to report the rental income.  If she did not then it is classified as a primary

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Federal income tax consequences on foreclosure that was primary home then rental property?

4 Answers