So I got a 1099 on a investment property I let go..Need HELP PLEASE.

[ronniej]

I got a 73K 1099 on an investment property I foreclosed on.

I am filing Ch. 7 soon. I have no Job, No assets and no income.

I heard form 982 is for homes you have lived in only.

Will it get dismissed when I file Ch.7?

Do I still have to pay the taxes? Am I still responsible?

[HHM]

Form 982 is not just for homes you lived in.

What you are thinking about is the 2007 Mortgage Debt Forgiveness Act, which only applies to primary residences.

The chapter 7 bankruptcy will take care of this, but because a 1099-C was reported, the IRS has it on file so you will need to take the extra step and do Form 982. Once you receive your discharge, you will be able to check the first box on Form 982 (debt discharged under Title 11 Case).

[ronniej]

That's weird that my CPA isn't aware of this. I really appreciate your help and will inform her. Anything else I should know?

Also I probably wont get discharged to 2011 should I wait on filing a 2010 return?

[HHM]

No, you need to file the return.

You may qualify as insolvent. There are a number of exceptions to paying income tax on forgiven debt. Go the IRS website, www.irs.gov and search for Form 982 and read the associated publication. That should clarify things for you.

[ronniej]

Thank you, I will let my CPA know.

[BnkrptcyLwyr]

Form 982 is not just for homes you lived in.

What you are thinking about is the 2007 Mortgage Debt Forgiveness Act, which only applies to primary residences.

The chapter 7 bankruptcy will take care of this, but because a 1099-C was reported, the IRS has it on file so you will need to take the extra step and do Form 982. Once you receive your discharge, you will be able to check the first box on Form 982 (debt discharged under Title 11 Case).

Not quite.

The debt is considered forgiven the day the mortgage company cancelled the debt (let's just say for now that it's the day that they issued the 1099-C). This debt, then, WAS NOT discharged in bankruptcy - how could it be, it has already been forgiven.

Also, if you're relying on the bankruptcy discharge, then the date the debt is forgiven is not the day you filed for bankruptcy, it is the actual date of the order of discharge.

You must rely on the "insolvency" exception to bankruptcy. Which it sounds like you will.

HHM is correct, form 982 is the proper form to exclude the income, provided you qualify for the insolvency exclusion.

ONE OTHER THING ... you must ALSO adjust tax attributes (NOL's, certain carryovers, basis in property, etc.) Your accountant should review section 108 of the Internal Revenue Code.

[HHM]

That issue is unsettled, actually. A 1099-C is merely a reporting document, it does not "technically" represent the act of forgiving the debt. There is a way the bank can issue a 1099-C and still keep it a collectible debt. (too difficult to explain here), but in the IRS code, there is a distinction between a "reporting event" and a "triggering event". The reporting event is merely administrative whereas the triggering event is the substantive act. There is a circumstance where the "reporting event" for a 1099-C can occur even if the underlying "triggering event" has not.

It ultimately comes down to timing; usually, if you file BK within a year of issuance of a 1099-C, you can still include the debt in BK. You start getting beyond that 1 year time frame, you are more likely to run into problems.

I would still advise that you include this debt in your BK and use 982, marking both the insolvency (if you qualify) and discharged in Title 11.

[BnkrptcyLwyr]

That issue is unsettled, actually. A 1099-C is merely a reporting document, it does not "technically" represent the act of forgiving the debt. There is a way the bank can issue a 1099-C and still keep it a collectible debt. (too difficult to explain here), but in the IRS code, there is a distinction between a "reporting event" and a "triggering event". The reporting event is merely administrative whereas the triggering event is the substantive act. There is a circumstance where the "reporting event" for a 1099-C can occur even if the underlying "triggering event" has not.

See http://edocket.access.gpo.gov/cfr_20...r1.6050P-1.pdf

The date of discharge is the date of the identifiable event.

Insolvency is determined immediately prior to the cancellation. See http://www.irs.gov/pub/irs-pdf/p4681.pdf

Proceed at your own peril. The timing matters.