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Discussion:CANCELLATION OF DEBT

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Discussion Forum Index --> Tax Questions --> CANCELLATION OF DEBT


SEIFU88 (talk|edits) said:

15 July 2006
My client received a CP200, adding $ 80,000 into income for 2004 as a result of cancellation of debt from a 2004 BK, The motgage company issued a 1099-C to IRS, which my client never received. Is discharge of debt from an investment property which was lost as a result of BK taxable income?

Riley2 (talk|edits) said:

16 July 2006
SEIFU88, presumably, there was a foreclosure sale or sale by the BK trustee and the sales proceeds were $80,000 less than the balance on the mortgage. If such is the case, then the $80,000 in debt cancellation should be excluded. See Form 982.

Www.cpa1.biz (talk|edits) said:

23 May 2007
Riley or anyone else who can help.

Resulting to a person who bought $16,000 of material and supplies on an AMEX credit card to use for their investment property. The AMEX cancelled the debt. THis would have been added to the basis when sold.

Question: Should this debt be included as income now (1099-C) and added to the basis when the investment property is sold. It was going to be added to the basis anyways? This would make it somewhat of a wash when the property is eventually sold.

Or should this not be included as income this year and not be added to the basis of the house? I think this latter question is not the way to go.

Please advise

Riley2 (talk|edits) said:

23 May 2007
The cost of the materials should have been added to basis at the time of installation. IF the debt cancelled while the client was insolvent or in bankruptcy, then the COD income would be nontaxable.

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