cm01WCqter4izzacwZ5xHE

RSS

Contributor

02/25/11 2:50pm PST
Viewed by asker 04/15/11 3:29pm PDT

Short Sale of Principle Home - Reduce Tax Attributes?

ProSeries

My client sold her principle home in a short sale. The COD income is all qualified principle residence indebtedness. I know that a foreclosure of principle home does not require me to reduce any tax attributes. Is the rule the same for short sale?

I read the following site: http://www.irs.gov/individuals...

but it only specifies foreclosures and I just want to be sure...

If I do need to reduce tax attributes, can I just reduce the basis in the house that was short sold?

Thank you all for your assistance!

Report Abuse

7 Replies

WhenInDoubt

Contributor

02/26/11 2:43am PST

COD is COD no matter whatever source derived. You only need to complete lines 1e and 2 on from 982 if this is qualified. None of the part ii.

Report Abuse

colibri

Contributor

02/28/11 9:14am PST

I know that COD income is COD income. But when excluding COD income, we are supposed to reduce tax attributes (i.e. NOLs, Gen Bus Credit, AMT credit, capital losses, basis reduction, and so forth). For foreclosures on qualified principle residence, tax attributes do NOT have to be reduced.

So my question is: Is this the same on a short sale of qualified principle residence?? Am I not requred to reduce tax attributes (as in the case of foreclorsure of qualified principle residence)?

Maybe the answer is still yes, but I just want to be sure my question is properly stated and understood.

Thanks!!

Report Abuse

WhenInDoubt

Contributor

02/28/11 11:33am PST

Sorry, I did not mean to be flippant. I did not see specific info regarding short sale.

However, if it is qualified mortgage, it seems to me any COD whether short sale or foreclosure would be treated the same. The recurring theme seems to be "qualified principal residence indebtedness"

The following is an excerpt from IRS

"If I sold my home at a loss and the remaining loan is forgiven, does this constitute a cancellation of debt?

Yes. To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. An exclusion is also available for the cancellation of certain nonbusiness debts of a qualified individual as a result of a disaster in a Midwestern disaster area. See Form 982 for details.

Report Abuse

giraffes5gb905

Contributor

03/22/12 5:33pm PDT

Hello, I have the same question but funny it did not get an answer. You know the debt is excludable. The reason I need to know if I have to reduce tax attributes(because of COD on short sale) is becuase the client will have to repay the first time homebuyer credit of $7,000 if there is a gain. If tax attributes are not required to be reduced because the taxpayer no longer owns the home or has any outstanding balance, it appears to NOT BE REQUIRED. This means a loss results when full adjusted basis less home sale proceeds are netted. (calculated without regard to COD) Pub 4681 page 8 just states that you must reduce basis when you still own the home after a cancellation of primary residence indebtedness. It seems to imply that it is not required in this Pub. But does not come out and say it is not required. There lies the rub.

Did you figure it out or get an answer to your question? Does anyone agree with this or know the answer to whether the basis must be adjusted? Thanks guys!

Report Abuse

tilt53

Accountant Community AllStar

03/22/12 5:34pm PDT

Enter the 1099-C and work your way through the cancelled debt worksheet.

Hail Cleo-Cat-Tra, Queen of Denial. I didn't do it.

For a professional answer you might want to ask this question of a paid support person at Intuit Tech Support (800-434-6818). Volunteers are not compensated or supported by Intuit.

Report Abuse

giraffes5gb905

Contributor

03/22/12 6:19pm PDT

The worksheet has a place for basis adjustment. You have to know whether there is one or not due to a reduction of tax attributes. If not, it is a loss like I said.

Report Abuse

giraffes5gb905

Contributor

03/22/12 6:24pm PDT