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WORKSHEET FOR FORECLOSED HOMES

 

table 1.-1 Worksheet for Foreclosures, Repossessions, Short Sales, and Abandonments

To fill out this form online click here.

Part 1. Figure your ordinary income from the cancellation of debt upon foreclosure or repossession. Complete this part 1 only if you were personally liable for the debt. Otherwise. go to Part 2.  

Note: If you were not personally liable for the loan or the loan was a non-recourse loan, you do not have ordinary income from the cancellation of debt. 

 1. Enter the amount of outstanding debt immediately before the transfer of property
reduced  by any amounts which you remain personally liable immediately after the 
transfer of the property

 

2. Enter the fair market value of the transferred property (FMV is usually on the 
1099A  or 1099C form that you received form the lender or bank)

 

3. Subtract line 2 from line 1 if less then zero, enter zero. This is the amount of your
ordinary income from the cancellation of debt upon foreclosure or repossession of 
the property. Next, go to part 2.

 

 

Part 2. Figure your gain or loss from foreclosure or repossession.

4. If you completed part 1, enter the smaller of line 1 or line 2. If you did not complete Part 1, enter the amount of  outstanding debt immediately before the transfer of the property

 

5. Enter any proceeds you received from the foreclosure sale.  

 

6. Add line 4 and line 5 (This is your realized amount from the transfer of property)

 

7. Enter the adjusted basis of the property foreclosed or repossessed.

 

8. Subtract line 7 from line 6 (this is your gain or loss from the property transferred)

     

Note: Report cancellation of debt income on line 21 of 1040 form. If the cancellation of debt income qualifies for exclusion of taxable income due to principal residence, chapter 11, Insolvency, Qualified business property, or Farm debt income exclusion, you have to include the excluded amount on form 982 and send it with your tax return.   

The taxable gain or loss of the property is reported on schedule 4797 or schedule D and 1040 form.

Tip: Loss on personal residence is not deductible. However, it you have a gain on your personal residence, you may exclude the gain up to $500,000 ($250,000.00 if you are single or MFS) from taxable income if the property qualifies as your main home. 

Tip: Loan modifications do not have gain or loss, however if you continue to live on your property after a loan has been modified or reduced, the amount reduced from your loan must be excluded form taxable income on IRS form 982 and the amount excluded from taxable income must be subtracted from the basis of your property. 

If cancelled debt from business qualified property is excluded from taxable income property, the basis of the subject property immediately before the foreclosure or transfer must be reduced by the amount of cancelled debt.