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2010 Tax Return Forms
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2010 tax return forms Publication 526 - Additional Material Prev Up Next Home More Online Publications
The 2010 Tax Return Forms
2010 tax return forms 2. 2010 tax return forms Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. 2010 tax return forms Amount realized on a nonrecourse debt. 2010 tax return forms If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. 2010 tax return forms The foreclosure or repossession is treated as a sale from which you may realize gain or loss. 2010 tax return forms This is true even if you voluntarily return the property to the lender. 2010 tax return forms If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. 2010 tax return forms You must report this income on your return unless certain exceptions or exclusions apply. 2010 tax return forms See chapter 1 for more details. 2010 tax return forms Borrower's gain or loss. 2010 tax return forms You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. 2010 tax return forms The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). 2010 tax return forms The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). 2010 tax return forms For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. 2010 tax return forms You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. 2010 tax return forms Amount realized and ordinary income on a recourse debt. 2010 tax return forms If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. 2010 tax return forms The amount realized also includes any proceeds you received from the foreclosure sale. 2010 tax return forms If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. 2010 tax return forms You must report this income on your return unless certain exceptions or exclusions apply. 2010 tax return forms See chapter 1 for more details. 2010 tax return forms Example 1. 2010 tax return forms Tara bought a new car for $15,000. 2010 tax return forms She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. 2010 tax return forms Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. 2010 tax return forms On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. 2010 tax return forms The balance due after taking into account the payments Tara made was $10,000. 2010 tax return forms The FMV of the car when it was repossessed was $9,000. 2010 tax return forms On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. 2010 tax return forms In this case, the amount Tara realizes is $9,000. 2010 tax return forms This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. 2010 tax return forms Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. 2010 tax return forms She has a $6,000 nondeductible loss. 2010 tax return forms After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). 2010 tax return forms Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. 2010 tax return forms Example 2. 2010 tax return forms Lili paid $200,000 for her home. 2010 tax return forms She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. 2010 tax return forms Lili is personally liable for the mortgage loan and the house secures the loan. 2010 tax return forms In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. 2010 tax return forms When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. 2010 tax return forms At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). 2010 tax return forms She remained personally liable for the $8,000 balance. 2010 tax return forms In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. 2010 tax return forms The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). 2010 tax return forms She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. 2010 tax return forms Lili must also determine her gain or loss from the foreclosure. 2010 tax return forms In this case, the amount that she realizes is $170,000. 2010 tax return forms This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. 2010 tax return forms Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. 2010 tax return forms She has a $5,000 nondeductible loss. 2010 tax return forms Table 1-1. 2010 tax return forms Worksheet for Foreclosures and Repossessions Part 1. 2010 tax return forms Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). 2010 tax return forms Otherwise, go to Part 2. 2010 tax return forms 1. 2010 tax return forms Enter the amount of outstanding debt immediately before the transfer of property reduced by any amount for which you remain personally liable immediately after the transfer of property 2. 2010 tax return forms Enter the fair market value of the transferred property 3. 2010 tax return forms Ordinary income from the cancellation of debt upon foreclosure or repossession. 2010 tax return forms * Subtract line 2 from line 1. 2010 tax return forms If less than zero, enter zero. 2010 tax return forms Next, go to Part 2 Part 2. 2010 tax return forms Gain or loss from foreclosure or repossession. 2010 tax return forms 4. 2010 tax return forms Enter the smaller of line 1 or line 2. 2010 tax return forms If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property 5. 2010 tax return forms Enter any proceeds you received from the foreclosure sale 6. 2010 tax return forms Add line 4 and line 5 7. 2010 tax return forms Enter the adjusted basis of the transferred property 8. 2010 tax return forms Gain or loss from foreclosure or repossession. 2010 tax return forms Subtract line 7 from line 6 * The income may not be taxable. 2010 tax return forms See chapter 1 for more details. 2010 tax return forms Amount realized on a nonrecourse debt. 2010 tax return forms If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. 2010 tax return forms This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. 2010 tax return forms Example 1. 2010 tax return forms Tara bought a new car for $15,000. 2010 tax return forms She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. 2010 tax return forms Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. 2010 tax return forms On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. 2010 tax return forms The balance due after taking into account the payments Tara made was $10,000. 2010 tax return forms The FMV of the car when it was repossessed was $9,000. 2010 tax return forms The amount Tara realized on the repossession is $10,000. 2010 tax return forms That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. 2010 tax return forms Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. 2010 tax return forms Tara has a $5,000 nondeductible loss. 2010 tax return forms Example 2. 2010 tax return forms Lili paid $200,000 for her home. 2010 tax return forms She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. 2010 tax return forms She is not personally liable for the loan, but grants the bank a mortgage. 2010 tax return forms The bank foreclosed on the mortgage because Lili stopped making payments. 2010 tax return forms When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. 2010 tax return forms The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. 2010 tax return forms She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. 2010 tax return forms Lili has a $5,000 realized gain. 2010 tax return forms See Publication 523 to figure and report any taxable amount. 2010 tax return forms Forms 1099-A and 1099-C. 2010 tax return forms A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. 2010 tax return forms However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. 2010 tax return forms The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. 2010 tax return forms For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. 2010 tax return forms Prev Up Next Home More Online Publications