Tag Archive for FMV

The Ins And Outs of Foreclosure (Part 6)

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Documentation –

As with all things dealing with income taxes documentation is a must. Since you are dealing with personal, business, and investment use property it is imperative that you have good documentation for all figures you use in your calculations. The exclusion of CODI and the lack of claiming a taxable gain on the proper forms is one of the “high risk” audit items at the IRS.

When dealing with your business and investment items you need the same type of documentation that you would use to determine basis for disposition. If the item has been in service and has been depreciated, a copy of the current depreciation worksheets are a great Read more

The Ins And Outs of Foreclosure (Part 5)

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More about John and Reporting Foreclosures –

There is also a good possibility of John having income related to the Cancellation of Debt (CODI). This is a separate transaction and calculation from the gain or loss on the deemed sale of the property. See the worksheet below for a quick example of how the two transactions are separate, yet, related to each other. John purchased the car for $25,000. The FMV when seized was $10,000 and the outstanding loan balance was $22,000.

Worksheet for Foreclosures and Repossessions

Part 1. Figure income from cancellation of debt. (Note: If not personally liable for the debt, there is no income from cancellation of debt. Skip Part 1 and go to Part 2. Read more

The Ins And Outs of Foreclosure (Part 4)

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Tax Consequences of Foreclosures –

When a foreclosure or repossession is made there are tax consequences in addition to the legal and monetary issues. When a piece of collateral is seized in place of a debt, it is deemed a sale of the property and must be reported like any other sale.

For recourse loans, the amount of the realized gain is:

the lesser of the debt immediately before the seizure reduced by any amount of the loan the debtor remains liable for after the seizure

Or Read more

Disaster Losses Including Casualty And Theft – IRS Publication 547 And Form 4684

If you take one look at FEMA’s website, it’s clear that we are going to see a significant increase in the number of casualty losses going forward. Should you find yourself a victim of a disaster or a casualty or theft loss it is very important that you know what you are entitled to from a tax perspective.

The best resource for this besides the US Tax Code is IRS Publication 547, Casualties, Disasters, and Thefts.  Be sure to review before or as part of preparing IRS Form 4684 when reporting to the IRS. Another good resource of course is the Instructions to the Casualty and Loss Reporting Form 4684.

Most people understand the proper tax treatment of what is often referred to as “standard” casualty and theft losses.

1. calculate the cost basis of the property before the loss

2. determine the decrease in the fair market value of the property as a result of the loss.

3. From the smaller of the two, deduct any insurance or other reimbursement received.

4. Using IRS Form 4684 apply the deduction limits to determine the amount of our deductible loss.

Here is where it starts to get convoluted. Each loss must be reduced by $100. And you further reduce the total of all losses by ten percent of your adjusted gross income.

It’s also important to remember that the loss must be reported the year in which it has occurred.

Before deducting the loss, you must be able to prove that there was a loss. If the loss is from theft for example: Read more