1099-C, I feel i paid for my debt in full

[flotbunker]

My partner an i purchased  a land  for $500K some 10 years ago.

Each of us paid 150K cash and and had a Seller financed Loan of 200K secured by the Note on the land with 6 per cent interest. We paid interest all these years.

in 2017  we signed a Deed in lieu of Foreclosure : returned the Land with FMV of 189K and paid cash of 11K thus making 200K.

The Seller is going to file 1099-C for 189K with each of us responsible  for 94.5K

What is my exposure tax wise?

[maglib]

the IRS typically classifies cancelled debt as income because you received a asset when you purchased and you never paid it back. However there are exceptions such as bankruptcies, read here:

https://turbotax.intuit.com/tax-tips/debt/when-to-use-tax-form-1099-c-for-cancellation-of-debt/L24iT... 

The TT interview should walk you through reporting and if you qualify for any exceptions.

To enter your 1099-C:

1. Open (continue) your return, if it's not already open.
2. In the TurboTax program, search for 1099-C or 1099C (lower-case also works) and then click or tap the "Jump to" link in the search results.
3. Select the type of cancelled debt (main home or other) and then click or tap Continue.
   • If using Free Edition, follow the prompts to upgrade to Deluxe.
4. Follow the onscreen instructions to enter information from your 1099-C.

Exclusions from Income for:

• Cancellation of qualified principal residence indebtedness, better known as mortgage debt relief (this expired but if debt cancellation was agreed to by 12/31/16 you may be in luck)
• Debt cancelled in a Title 11 bankruptcy;
• Debt cancelled during insolvency (the amount exceeding your assets);
• Cancellation of qualified farm or real property indebtedness.

If the debt qualifies for any of these exclusions, TurboTax will complete Form 982 and include it with your return.

I hope this was helpful?

[flotbunker]

Thanks a lot. I have Home & Business TT. What about my lost cash  investment of 150K? Should i file it in income part and then will the TT  relate it with 1099-C? Will it compute my over all losses on this investment as 150K-94.5K=55.5K?  I do not still understand the nature of my responsibility of paying any taxes for the all amounts that i lost. I only deducted   mortgage  interest that i paid annually.
I do not understand The Seller's/Lender's overall benefits: It got 300K cash for the property upon closing plus 13 years x 9K = 117 K of interest paid by us  plus returned property evaluated as FMV of  189K + 11K (cash) but we as partners are responsible for 189K taxwise, not to mention property tax plus maintenance all these years that we paid. Where is our income? What about IRS publication 4681 saying' the ordinary income from the cancellation of debt over  the FMV of the property must be included in your gross income". I assume we are responsible for only 11K  but we paid it  back to the Lender.  Appreciate your comments. Thanks.

[maglib]

Personal losses on property are not deductible.  At the time you bought the home the home was valued and you received $ from the lender based on the FMV at the time,  you never paid back the principal you borrowed, ultimately you got money of value that you used to buy a home and used the home as collateral for the loan. While you had a loss on the property, other similar properties values were lower and their costs were lower, you still got value that was never paid back. Interest and principal are wholly different.  your lender determines the amount of the 1099-C you will have to discuss with them how they calculated the loan forgiveness amount. In foreclosure the FMV of the property is often far less than what you may think and the banks often sell for far less and have other costs.  TT handles the calculations

[maglib]

basic example: you borrow $200 to buy a home for $250. You use the home as collateral.  So you got $200.  You pay back over the years principal and interest, only care about principal of say $50 so now you owe net $150.  the home plummets in value with the market to only worth $75.  You walk away from the obligation.  The bank sells in foreclosure and only gets $60 and has tons of other costs for this.  Net at the end of the day 200 original brw - 50 pd back - 60 bank got funds = $90 of loan forgiveness to you. you also got to live in that home and not pay rent to someone.  That's how it's looked at.

[flotbunker]

Thanks for an example. I don’ s think it refers to my case. In my case the Lender got
Full amount of 200K and forgave nothing. The FMV is 189K,  he got it and 11K in cash, so full amount of debt on the Note.

[maglib]

Box 4. Fair Market Value (FMV) of Property
For a foreclosure, execution, or similar sale, enter the
FMV of the property. See Temporary Regulations section
1.6050J-1T, Q/A-32. Generally, the gross foreclosure bid
price is considered to be the FMV. If an abandonment or
voluntary conveyance to the lender in lieu of foreclosure
occurred and you placed an “X” in the checkbox in box 5,
enter the appraised value of the property. Otherwise,
make no entry in this box.
 
Then TT will take the box 4 amount into consideration.

[maglib]

<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i1099ac.pdf">https://www.irs.gov/pub/irs-pdf/i1099ac.pdf</a>  the lender should have followed the 1099C guidelines.  have you entered your 1099C yet and have you gone through the interview?  Was this a business property held for investment or rental and were you depreciating it over it's life ?

[flotbunker]

Unfortunately, the Lender has not provided the copy of the Form 1099-C. However, it declared  in the DEED IN L of F that he will file with IRS 1099-C for the amount of 189K.
We asked the Lender to send us a copy.
As such i have not entered anything in my TT.  I am still researching.
This was an investment property, actually it is a piece of land in FL, while i am residing in WA.  As i take it i can offset my losses with any gains on the investments in the current year. Otherwise i could deduct 3K per annum only with the balance to be carried over. Right? As such, can my losses of 150 K be offset by 1099-C amount of 94.5 if any? Thanks.

[flotbunker]

It is a personal investment. As such, no depreciation was applied to it.

[maglib]

losses on investments are deductible...  Losses Offset Gains. If you sold your investment property for less than your cost basis, you have a deductible loss. You can use that loss to offset all your capital gains from other investments and up to $3,000 in income from other sources in the current year.  you will have to determine the correct cost basis.  You really need to get a copy of the 1099C. They were supposed to be mailed out already.