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Amending A Tax Return

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Amending A Tax Return

Amending a tax return 3. Amending a tax return   Abandonments Table of Contents You abandon property when you voluntarily and permanently give up possession and use of the property with the intention of ending your ownership but without passing it on to anyone else. Amending a tax return Whether an abandonment has occurred is determined in light of all the facts and circumstances. Amending a tax return You must both show an intention to abandon the property and affirmatively act to abandon the property. Amending a tax return A voluntary conveyance of the property in lieu of foreclosure is not an abandonment and is treated as the exchange of property to satisfy a debt. Amending a tax return For more information, see Sales and Exchanges in Publication 544. Amending a tax return The tax consequences of abandonment of property that secures a debt depend on whether you were personally liable for the debt (recourse debt) or were not personally liable for the debt (nonrecourse debt). Amending a tax return See Publication 544 if you abandoned property that did not secure debt. Amending a tax return This publication only discusses the tax consequences of abandoning property that secured a debt. Amending a tax return Abandonment of property securing recourse debt. Amending a tax return    In most cases, if you abandon property that secures debt for which you are personally liable (recourse debt), you do not have gain or loss until the later foreclosure is completed. Amending a tax return For details on figuring gain or loss on the foreclosure, see chapter 2. Amending a tax return Example 1—abandonment of personal-use property securing recourse debt. Amending a tax return In 2009, Anne purchased a home for $200,000. Amending a tax return She borrowed the entire purchase price, for which she was personally liable, and gave the bank a mortgage on the home. Amending a tax return In 2013, Anne lost her job and was unable to continue making her mortgage loan payments. Amending a tax return Because her mortgage loan balance was $185,000 and the FMV of her home was only $150,000, Anne decided to abandon her home by permanently moving out on August 1, 2013. Amending a tax return Because Anne was personally liable for the debt and the bank did not complete a foreclosure of the property in 2013, Anne has neither gain nor loss in tax year 2013 from abandoning the home. Amending a tax return If the bank sells the house at a foreclosure sale in 2014, Anne will have to figure her gain or nondeductible loss for tax year 2014 as discussed earlier in chapter 2. Amending a tax return Example 2—abandonment of business or investment property securing recourse debt. Amending a tax return In 2009, Sue purchased business property for $200,000. Amending a tax return She borrowed the entire purchase price, for which she was personally liable, and gave the lender a security interest in the property. Amending a tax return In 2013, Sue was unable to continue making her loan payments. Amending a tax return Because her loan balance was $185,000 and the FMV of the property was only $150,000, Sue abandoned the property on August 1, 2013. Amending a tax return Because Sue was personally liable for the debt and the lender did not complete a foreclosure of the property in 2013, Sue has neither gain nor loss in tax year 2013 from abandoning the property. Amending a tax return If the lender sells the property at a foreclosure sale in 2014, Sue will have to figure her gain or deductible loss for tax year 2014 as discussed earlier in chapter 2. Amending a tax return Abandonment of property securing nonrecourse debt. Amending a tax return    If you abandon property that secures debt for which you are not personally liable (nonrecourse debt), the abandonment is treated as a sale or exchange. Amending a tax return   The amount you realize on the abandonment of property that secured nonrecourse debt is the amount of the nonrecourse debt. Amending a tax return If the amount you realize is more than your adjusted basis, then you have a gain. Amending a tax return If your adjusted basis is more than the amount you realize, then you have a loss. Amending a tax return For more information on how to figure gain and loss, see Gain or Loss from Sales or Exchanges in Publication 544. Amending a tax return   Loss from abandonment of business or investment property is deductible as a loss. Amending a tax return The character of the loss depends on the character of the property. Amending a tax return The amount of deductible capital loss may be limited. Amending a tax return For more information, see Treatment of Capital Losses in Publication 544. Amending a tax return You cannot deduct any loss from abandonment of your home or other property held for personal use. Amending a tax return Example 1—abandonment of personal-use property securing nonrecourse debt. Amending a tax return In 2009, Timothy purchased a home for $200,000. Amending a tax return He borrowed the entire purchase price, for which he was not personally liable, and gave the bank a mortgage on the home. Amending a tax return In 2013, Timothy lost his job and was unable to continue making his mortgage loan payments. Amending a tax return Because his mortgage loan balance was $185,000 and the FMV of his home was only $150,000, Timothy decided to abandon his home by permanently moving out on August 1, 2013. Amending a tax return Because Timothy was not personally liable for the debt, the abandonment is treated as a sale or exchange of the home in tax year 2013. Amending a tax return Timothy's amount realized is $185,000 and his adjusted basis in the home is $200,000. Amending a tax return Timothy has a $15,000 nondeductible loss in tax year 2013. Amending a tax return (Had Timothy’s adjusted basis been less than the amount realized, Timothy would have had a gain that he would have to include in gross income. Amending a tax return ) The bank sells the house at a foreclosure sale in 2014. Amending a tax return Timothy has neither gain nor loss from the foreclosure sale. Amending a tax return Because he was not personally liable for the debt, he also has no cancellation of debt income. Amending a tax return Example 2—abandonment of business or investment property securing nonrecourse debt. Amending a tax return In 2009, Robert purchased business property for $200,000. Amending a tax return He borrowed the entire purchase price, for which he was not personally liable, and gave the lender a security interest in the property. Amending a tax return In 2013, Robert was unable to continue making his loan payments. Amending a tax return Because his loan balance was $185,000 and the FMV of the property was only $150,000, Robert decided to abandon the property on August 1, 2013. Amending a tax return Because Robert was not personally liable for the debt, the abandonment is treated as a sale or exchange of the property in tax year 2013. Amending a tax return Robert's amount realized is $185,000 and his adjusted basis in the property is $180,000 (as a result of $20,000 of depreciation deductions on the property). Amending a tax return Robert has a $5,000 gain in tax year 2013. Amending a tax return (Had Robert’s adjusted basis been greater than the amount realized, he would have had a deductible loss. Amending a tax return ) The lender sells the property at a foreclosure sale in 2014. Amending a tax return Robert has neither gain nor loss from the foreclosure sale. Amending a tax return Because he was not personally liable for the debt, he also has no cancellation of debt income. Amending a tax return Canceled debt. Amending a tax return    If the abandoned property secures a debt for which you are personally liable and the debt is canceled, you will realize ordinary income equal to the canceled debt. Amending a tax return This income is separate from any amount realized from abandonment of the property. Amending a tax return You must report this income on your return unless one of the exceptions or exclusions described in chapter 1 applies. Amending a tax return See chapter 1 for more details. Amending a tax return Forms 1099-A and 1099-C. Amending a tax return    In most cases, if you abandon real property (such as a home), intangible property, or tangible personal property held (wholly or partly) for use in a trade or business or for investment, that secures a loan and the lender knows the property has been abandoned, the lender should send you Form 1099-A showing information you need to figure your gain or loss from the abandonment. Amending a tax return Also, if your debt is canceled and the lender must file Form 1099-C, the lender can include the information about the abandonment on that form instead of on Form 1099-A. Amending a tax return The lender must file Form 1099-C and send you a copy if the amount of debt canceled is $600 or more and the lender is a financial institution, credit union, federal government agency, or any organization that has a significant trade or business of lending money. Amending a tax return For abandonments of property and debt cancellations occurring in 2013, these forms should be sent to you by January 31, 2014. Amending a tax return Prev  Up  Next   Home   More Online Publications
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