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Free State And Federal Tax Preparation

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Free State And Federal Tax Preparation

Free state and federal tax preparation 2. Free state and federal tax preparation   Foreclosures and Repossessions Table of Contents Amount realized and ordinary income on a recourse debt. Free state and federal tax preparation Amount realized on a nonrecourse debt. Free state and federal tax preparation If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. Free state and federal tax preparation The foreclosure or repossession is treated as a sale from which you may realize gain or loss. Free state and federal tax preparation This is true even if you voluntarily return the property to the lender. Free state and federal tax preparation If the outstanding loan balance was more than the FMV of the property and the lender cancels all or part of the remaining loan balance, you also may realize ordinary income from the cancellation of debt. Free state and federal tax preparation You must report this income on your return unless certain exceptions or exclusions apply. Free state and federal tax preparation See chapter 1 for more details. Free state and federal tax preparation Borrower's gain or loss. Free state and federal tax preparation    You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale. Free state and federal tax preparation The gain is the difference between the amount realized and your adjusted basis in the transferred property (amount realized minus adjusted basis). Free state and federal tax preparation The loss is the difference between your adjusted basis in the transferred property and the amount realized (adjusted basis minus amount realized). Free state and federal tax preparation For more information on figuring gain or loss from the sale of property, see Gain or Loss From Sales and Exchanges in Publication 544. Free state and federal tax preparation You can use Table 1-1 to figure your ordinary income from the cancellation of debt and your gain or loss from a foreclosure or repossession. Free state and federal tax preparation Amount realized and ordinary income on a recourse debt. Free state and federal tax preparation    If you are personally liable for the debt, the amount realized on the foreclosure or repossession includes the smaller of: The outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, or The FMV of the transferred property. Free state and federal tax preparation The amount realized also includes any proceeds you received from the foreclosure sale. Free state and federal tax preparation If the FMV of the transferred property is less than the total outstanding debt immediately before the transfer reduced by any amount for which you remain personally liable immediately after the transfer, the difference is ordinary income from the cancellation of debt. Free state and federal tax preparation You must report this income on your return unless certain exceptions or exclusions apply. Free state and federal tax preparation See chapter 1 for more details. Free state and federal tax preparation       Example 1. Free state and federal tax preparation Tara bought a new car for $15,000. Free state and federal tax preparation She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Free state and federal tax preparation Tara is personally liable for the loan (recourse debt) and the car is pledged as security for the loan. Free state and federal tax preparation On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Free state and federal tax preparation The balance due after taking into account the payments Tara made was $10,000. Free state and federal tax preparation The FMV of the car when it was repossessed was $9,000. Free state and federal tax preparation On November 15, 2013, the credit company forgave the remaining $1,000 balance on the loan due to insufficient assets. Free state and federal tax preparation In this case, the amount Tara realizes is $9,000. Free state and federal tax preparation This is the smaller of: The $10,000 outstanding debt immediately before the repossession reduced by the $1,000 for which she remains personally liable immediately after the repossession ($10,000 − $1,000 = $9,000), or The $9,000 FMV of the car. Free state and federal tax preparation Tara figures her gain or loss on the repossession by comparing the $9,000 amount realized with her $15,000 adjusted basis. Free state and federal tax preparation She has a $6,000 nondeductible loss. Free state and federal tax preparation After the cancellation of the remaining balance on the loan in November, Tara also has ordinary income from cancellation of debt in the amount of $1,000 (the remaining balance on the $10,000 loan after the $9,000 amount satisfied by the FMV of the repossessed car). Free state and federal tax preparation Tara must report this $1,000 on her return unless one of the exceptions or exclusions described in chapter 1 applies. Free state and federal tax preparation Example 2. Free state and federal tax preparation Lili paid $200,000 for her home. Free state and federal tax preparation She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Free state and federal tax preparation Lili is personally liable for the mortgage loan and the house secures the loan. Free state and federal tax preparation In 2013, the bank foreclosed on the mortgage because Lili stopped making payments. Free state and federal tax preparation When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Free state and federal tax preparation At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000). Free state and federal tax preparation She remained personally liable for the $8,000 balance. Free state and federal tax preparation In this case, Lili has ordinary income from the cancellation of debt in the amount of $2,000. Free state and federal tax preparation The $2,000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house from the $172,000 difference between her total outstanding debt immediately before the transfer of property and the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8,000). Free state and federal tax preparation She is able to exclude the $2,000 of canceled debt from her income under the qualified principal residence indebtedness rules discussed earlier. Free state and federal tax preparation Lili must also determine her gain or loss from the foreclosure. Free state and federal tax preparation In this case, the amount that she realizes is $170,000. Free state and federal tax preparation This is the smaller of: (a) the $180,000 outstanding debt immediately before the transfer reduced by the $8,000 for which she remains personally liable immediately after the transfer ($180,000 − $8,000 = $172,000) or (b) the $170,000 FMV of the house. Free state and federal tax preparation Lili figures her gain or loss on the foreclosure by comparing the $170,000 amount realized with her $175,000 adjusted basis. Free state and federal tax preparation She has a $5,000 nondeductible loss. Free state and federal tax preparation Table 1-1. Free state and federal tax preparation Worksheet for Foreclosures and Repossessions Part 1. Free state and federal tax preparation Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Free state and federal tax preparation Otherwise, go to Part 2. Free state and federal tax preparation 1. Free state and federal tax preparation 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   2. Free state and federal tax preparation Enter the fair market value of the transferred property   3. Free state and federal tax preparation Ordinary income from the cancellation of debt upon foreclosure or repossession. Free state and federal tax preparation * Subtract line 2 from line 1. Free state and federal tax preparation If less than zero, enter zero. Free state and federal tax preparation Next, go to Part 2   Part 2. Free state and federal tax preparation Gain or loss from foreclosure or repossession. Free state and federal tax preparation   4. Free state and federal tax preparation Enter the smaller of line 1 or line 2. Free state and federal tax preparation If you did not complete Part 1 (because you were not personally liable for the debt), enter the amount of outstanding debt immediately before the transfer of property   5. Free state and federal tax preparation Enter any proceeds you received from the foreclosure sale   6. Free state and federal tax preparation Add line 4 and line 5   7. Free state and federal tax preparation Enter the adjusted basis of the transferred property   8. Free state and federal tax preparation Gain or loss from foreclosure or repossession. Free state and federal tax preparation Subtract line 7 from line 6   * The income may not be taxable. Free state and federal tax preparation See chapter 1 for more details. Free state and federal tax preparation Amount realized on a nonrecourse debt. Free state and federal tax preparation    If you are not personally liable for repaying the debt secured by the transferred property, the amount you realize includes the full amount of the outstanding debt immediately before the transfer. Free state and federal tax preparation This is true even if the FMV of the property is less than the outstanding debt immediately before the transfer. Free state and federal tax preparation Example 1. Free state and federal tax preparation Tara bought a new car for $15,000. Free state and federal tax preparation She made a $2,000 downpayment and borrowed the remaining $13,000 from the dealer's credit company. Free state and federal tax preparation Tara is not personally liable for the loan (nonrecourse), but pledged the new car as security for the loan. Free state and federal tax preparation On August 1, 2013, the credit company repossessed the car because Tara had stopped making loan payments. Free state and federal tax preparation The balance due after taking into account the payments Tara made was $10,000. Free state and federal tax preparation The FMV of the car when it was repossessed was $9,000. Free state and federal tax preparation The amount Tara realized on the repossession is $10,000. Free state and federal tax preparation That is the outstanding amount of debt immediately before the repossession, even though the FMV of the car is less than $10,000. Free state and federal tax preparation Tara figures her gain or loss on the repossession by comparing the $10,000 amount realized with her $15,000 adjusted basis. Free state and federal tax preparation Tara has a $5,000 nondeductible loss. Free state and federal tax preparation Example 2. Free state and federal tax preparation Lili paid $200,000 for her home. Free state and federal tax preparation She made a $15,000 downpayment and borrowed the remaining $185,000 from a bank. Free state and federal tax preparation She is not personally liable for the loan, but grants the bank a mortgage. Free state and federal tax preparation The bank foreclosed on the mortgage because Lili stopped making payments. Free state and federal tax preparation When the bank foreclosed on the mortgage, the balance due was $180,000, the FMV of the house was $170,000, and Lili's adjusted basis was $175,000 due to a casualty loss she had deducted. Free state and federal tax preparation The amount Lili realized on the foreclosure is $180,000, the outstanding debt immediately before the foreclosure. Free state and federal tax preparation She figures her gain or loss by comparing the $180,000 amount realized with her $175,000 adjusted basis. Free state and federal tax preparation Lili has a $5,000 realized gain. Free state and federal tax preparation See Publication 523 to figure and report any taxable amount. Free state and federal tax preparation Forms 1099-A and 1099-C. Free state and federal tax preparation    A lender who acquires an interest in your property in a foreclosure or repossession should send you Form 1099-A, Acquisition or Abandonment of Secured Property, showing information you need to figure your gain or loss. Free state and federal tax preparation However, if the lender also cancels part of your debt and must file Form 1099-C, the lender can include the information about the foreclosure or repossession on that form instead of on Form 1099-A. Free state and federal tax preparation 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. Free state and federal tax preparation For foreclosures or repossessions occurring in 2013, these forms should be sent to you by January 31, 2014. 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The Free State And Federal Tax Preparation

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