1099-C (Cancelled debt for rental Property)

[khai_le_nc1]

I am using TurboTax 2021 (Home and Business Version) to enter cancelled debt for 1 of my rental property.   

I understand that:

-- My taxes should reflect amount of debt discharged (Box 2) and Interest (Box 3)

-- My Taxes should not depend on Fair Market Value of Property (Box 7)

Note that:

-- TurboTax 2021 uses Fair Market Value of Property to compute 2021 Tax.   Is this a bug?

-- TurboTax 2020 did not use Fair Market Value of Property to compute 2020 Tax.   This is correct

I'd appreciate receiving your feedback on this question

Thanks.... Le

[Mike9241]

hopefully others will add to my comments

under IRC 108 

(3) Qualified real property business indebtedness The term “qualified real property business indebtedness” means indebtedness which— (A) was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by such real property, (B) was incurred or assumed before January 1, 1993 , or if incurred or assumed on or after such date, is qualified acquisition indebtedness, and (C) with respect to which such taxpayer makes an election to have this paragraph apply.

if the debt qualifies what you can do rather than picking up the canceled debt as income is reduce the basis of the underlying property. you file form 982 with your return.   obviously, if the nonrecognition income amount can't exceed the adjusted basis of the property.

use is not mandatory so you may want a pro to look at your situation to see if this is a better option, assuming it qualifies, than picking up the debt as income

[khai_le_nc1]

I believe that there is bug in the TT21 logic to compute tax for canceled debts for rental property.

I have 2 questions:

-- How do I report this bug?

-- Does TurboTax have a customer support number I can call?

Note that:

-- this bug only exists in TT21 (Home & Business).

-- TT20 (Home & Business) worked well.

Thanks... Le

[RobertB4444]

You don't give enough information to help you figure out whether there is a bug or an entry problem.  But you asked for a contact number.

In that case you can call an expert and ask questions over the phone.

Here is a link to the TurboTax Phone Number.

[boomtown]

I have the same form to enter, however the property was foreclosed on so a cost basis adjustment does not seem possible (it was foreclosed in 2011, in 2021 the debt was cancelled).

Do you think I can still qualify for the “qualified real property business indebtedness”? I seem to based on the requirements, but cannot fulfill the cost basis adjustment afterwards

[Mike9241]

see this thread for how the foreclosure should have been handled for tax purposes in 2011

https://www.avvo.com/legal-guides/ugc/what-are-my-tax-implications-for-a-foreclosure-on-a-rental-pro... 

please provide an explanation of why the debt wasn't canceled upon foreclosure. 

non-recourse debt should have been canceled upon foreclosure 

if it wasn't non-recourse did the lender pursue collection?

if not do you know why?

if it did what wasn't it paid off?

was the property located in Louisiana?