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Worksheet for Foreclosures and Repossessions

Table 1.-1 Worksheet for Foreclosures, Repossessions, Short Sales, and Abandonments
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Part 1. Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). 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 cancelations of debt.

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

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2. Enter the fair market value of the transferred property.

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3. Ordinary income from the cancelation of debt upon foreclosure or repossession.* Subtract line 2 from line 1. If less than zero, enter zero. Next, go to Part 2.

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Part 2. Gain or loss from foreclosure or repossession.

4. Enter the smaller of line 1 or line 2. If you didn't complete Part 1 (because you weren't personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property.

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

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6. Add line 4 and line 5.

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7. Enter the adjusted basis of the transferred property.

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8. Gain or loss from foreclosure or repossession. Subtract line 7 from line 6.

 _____

* The income may not be taxable. See chapter 1 for more details.

Note: Report cancelation of debt income on line 21 of 1040 form. If the cancelation 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 canceled 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 canceled debt.

For more information Canceled Debts, Foreclosures, Repossessions, and Abandonments