Investors & landlords
Thank you Dave. I'll respond to your answers.
- 1, 2, 6, & 7
Are you saying that if I do not amend 2019 to claim depreciation (which will create a carryover,) that I will still have to reduce my basis (as if I did claim it,) and I would not be able to adjust my passive loss carryover by the same amount? You also said I need to amend my 2019 first, but amended returns are taking months, if not longer, to be processed. Is it ok to go ahead and e-file my 2020 even if the amended return takes 6 months?
- 4. The cancellation of debt generated from a 1099-C would never appear as income in 2020 on a Schedule E regardless of your circumstance. The 1099-C is simply mortgage forgiveness. It would appear as ordinary income (Or loss) on line 8 of your 1040.
According to IRS Pub. 4681 Canceled Debts, Foreclosures, Repossessions, and Abandonments, page 3:
You must report any taxable canceled debt as ordinary income on:
• Schedule 1 (Form 1040), line 8, if the debt is a nonbusiness debt;
• Schedule C (Form 1040), line 6, if the debt is related to a nonfarm sole proprietorship;
• Schedule E (Form 1040), line 3, if the debt is related to nonfarm rental of real property
Turbo Tax Premier Desktop has a Canceled Debt Worksheet that guided me through everything. I had to switch to forms view to find it. It links the 1099-C to the Sch. E. The worksheet instructions state that it does not support AMT differences (which doesn't apply to our rental.) It also says: For secured debt, complete Part II, with the requested information about type, usage, and disposition of the secured property. If box 7a, 7b or 7c is checked, the property is treated as section 1250 property and the depreciation on line 12 is not recaptured. The Canceled Debt Worksheet does not support section 1250 depreciation expense recapture. (I have a loss, so this also does not apply, correct?) Perhaps this is why Turbo Tax does not handle it in the step-by-step and says to seek advice from a professional or read IRS publications (which I have EXTENSIVELY.) Everything I have read from IRS says that the CODI goes on Sch.E for a rental. Also, the calculations on this worksheet for figuring the gain/loss from a foreclosure are straight out of IRS Pub. 4681.
It's possible that I could have entered something incorrectly, so if it looks off, let me know. Everything goes to their correct forms and makes sense (at least to me.) I did a review and TT didn't find any errors. Here is the redacted worksheet from TT. I can post images of the other forms in the morning, like the Sch. E and 4797. Just posting this one has taken me hours lol, so I'm headed to bed.
Thanks again!
