Tax question about F982.pdf - Reduction of Tax Attributes Due to Discharge of Indebtedness?

Could someone please explain line 10a?

Line 10a. In the case of a title 11 case or insolvency (except

when an election under section 108(b)(5) is made), the

reduction in basis is limited to the aggregate of the basis of

your property immediately after the discharge over the

aggregate of your liabilities immediately after the discharge.

(what does all that goop mean?)

Also, what does it mean below by (other than qualified principal residence indebtedness) ?

A nonbusiness debt (other

than qualified principal

residence indebtedness,

such as a car loan or credit

card debt)

I had a Credit card cancel debt and two mortgages, one mortgage was a second mortgage on my main house, the other was a second mortgage on a rental.

Any help with filling out this form is appreciated.

Tax question about F982.pdf - Reduction of Tax Attributes Due to Discharge of Indebtedness?

You have a mess on your hands.

On the mortgages, have you gotten the 1099-Cs yet? If no, you don%26#039;t mess with the form 982 yet. If you have gotten only the 1099-A, you need to report the %26quot;sales.%26quot; The main home on schedule D (losses not deductible) and the rental property on schedule 4797. How much you %26quot;sold%26quot; the properties for depends on whether it says the borrow is liable. If yes, use the smaller amount. If no, use the DEBT amount.

When you get the 1099-Cs (and you%26#039;ll have already gotten one for the credit cards), then you look at form 982.

If you are in bankruptcy, check 1a. If you lost your primary residence due to foreclosure, you *might* be able to check box 1e, otherwise both rental and credit cards are part of 1b.

To qualify under 1b, you must prove you are insolvent. Step one, make a list of all your assets (at FMV) and debts just before the 1099-Cs were issued. *IF* you had liquidated everything, would you have still owed anybody? If yes, you are insolvent and the difference is how much you are insolvent by. (You can exlude this much debt on the form 982.) Step two, day after the cancellation, redo the lists for remaining assets and debt, but list the assets at your cost basis. If you are still %26quot;insolvent%26quot; then you stop as you%26#039;ve reached the limit. If your assets are worth more than your debt, then you start reducing the assets (line 10A) until either you have equalized the paper value with the remaining debts or you%26#039;ve accounted for all of the excluded amount. Then, later, when you sell any item, you use this new cost basis to determine gain and if you have a gain, put the gain on that year%26#039;s 1040 line 21, as other income.

To qualify on line 1E, this has to be your primary residence and you have to show that the mortgage met the standards (you didn%26#039;t refinance and cash out), that you meet the 2/5 year rule for living in the house, etc. Then you use line 10B to change the cancelled debt to a reduced basis in the house. This generally works in your favor.

Tax question about F982.pdf - Reduction of Tax Attributes Due to Discharge of Indebtedness?

Well if the mortgage companies wiped out your debt you should receive a 1099 as income, and you will owe taxes on that income, and they will be at the rate of a bonus. There is no free money