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Tax Act 2012

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Tax Act 2012

Tax act 2012 5. Tax act 2012   Ministers and Church Employees Table of Contents Alternative Limit for Church Employees Changes to Includible Compensation for Most Recent Year of ServiceChanges to Includible Compensation Changes to Years of Service Self-employed ministers and church employees who participate in 403(b) plans generally follow the same rules as other 403(b) plan participants. Tax act 2012 This means that if you are a self-employed minister or a church employee, your MAC generally is the lesser of: Your limit on annual additions, or Your limit on elective deferrals. Tax act 2012 For most ministers and church employees, the limit on annual additions is figured without any changes. Tax act 2012 This means that if you are a minister or church employee, your limit on annual additions generally is the lesser of: $51,000 for 2013 and $52,000 for 2014, or Your includible compensation for your most recent year of service. Tax act 2012 Although, in general, the same limit applies, church employees can choose an alternative limit and there are changes in how church employees, foreign missionaries, and self-employed ministers figure includible compensation for the most recent year of service. Tax act 2012 This chapter will explain the alternative limit and the changes. Tax act 2012 Who is a church employee?   A church employee is anyone who is an employee of a church or a convention or association of churches, including an employee of a tax-exempt organization controlled by or associated with a church or a convention or association of churches. Tax act 2012 Alternative Limit for Church Employees If you are a church employee, you can choose to use $10,000 a year as your limit on annual additions, even if your annual additions computed under the general rule is less. Tax act 2012 Total contributions over your lifetime under this choice cannot be more than $40,000. Tax act 2012 Changes to Includible Compensation for Most Recent Year of Service There are two types of changes in determining includible compensation for the most recent year of service. Tax act 2012 They are: Changes in how the includible compensation of foreign missionaries and self-employed ministers is figured, and A change to the years that are counted when figuring the most recent year of service for church employees and self-employed ministers. Tax act 2012 Changes to Includible Compensation Includible compensation is figured differently for foreign missionaries and self-employed ministers. Tax act 2012 Foreign missionary. Tax act 2012   If you are a foreign missionary, your includible compensation includes foreign earned income that may otherwise be excludable from your gross income under section 911. Tax act 2012   If you are a foreign missionary, and your adjusted gross income is $17,000 or less, contributions to your 403(b) account will not be treated as exceeding the limit on annual additions if the contributions are not in excess of $3,000. Tax act 2012   You are a foreign missionary if you are either a layperson or a duly ordained, commissioned, or licensed minister of a church and you meet both of the following requirements. Tax act 2012 You are an employee of a church or convention or association of churches. Tax act 2012 You are performing services for the church outside the United States. Tax act 2012 Self-employed minister. Tax act 2012   If you are a self-employed minister, you are treated as an employee of a tax-exempt organization that is a qualified employer. Tax act 2012 Your includible compensation is your net earnings from your ministry minus the contributions made to the retirement plan on your behalf and the deductible portion of your self-employment tax. Tax act 2012 Changes to Years of Service Generally, only service with the employer who maintains your 403(b) account can be counted when figuring your limit on annual additions. Tax act 2012 Church employees. Tax act 2012   If you are a church employee, treat all of your years of service as an employee of a church or a convention or association of churches as years of service with one employer. Tax act 2012 Self-employed minister. Tax act 2012   If you are a self-employed minister, your years of service include full and part years during which you were self-employed. Tax act 2012 Prev  Up  Next   Home   More Online Publications

The Tax Act 2012

Tax act 2012 4. Tax act 2012   Detailed Examples Table of Contents These examples use actual forms to help you prepare your income tax return. Tax act 2012 However, the information shown on the filled-in forms is not from any actual person or scenario. Tax act 2012 Example 1—Mortgage loan modification. Tax act 2012    In 2007, Nancy Oak bought a main home for $435,000. Tax act 2012 Nancy took out a $420,000 mortgage loan to buy the home and made a down payment of $15,000. Tax act 2012 The loan was secured by the home. Tax act 2012 The mortgage loan was a recourse debt, meaning that Nancy was personally liable for the debt. Tax act 2012 In 2008, Nancy took out a second mortgage loan (also a recourse debt) in the amount of $30,000 that was used to substantially improve her kitchen. Tax act 2012    In 2011, when the outstanding principal of the first and second mortgage loans was $440,000, Nancy refinanced the two recourse loans into one recourse loan in the amount of $475,000. Tax act 2012 The FMV of Nancy's home at the time of the refinancing was $500,000. Tax act 2012 Nancy used the additional $35,000 debt ($475,000 new mortgage loan minus $440,000 outstanding principal of Nancy's first and second mortgage loans immediately before the refinancing) to pay off personal credit cards and to pay college tuition for her son. Tax act 2012 After the refinancing, Nancy has qualified principal residence indebtedness in the amount of $440,000 because the refinanced debt is qualified principal residence indebtedness only to the extent the amount of debt is not more than the old mortgage principal just before the refinancing. Tax act 2012   In 2013, Nancy was unable to make her mortgage loan payments. Tax act 2012 On August 31, 2013, when the outstanding balance of her refinanced mortgage loan was still $475,000 and the FMV of the property was $425,000, Nancy's bank agreed to a loan modification (a “workout”) that resulted in a $40,000 reduction in the principal balance of her loan. Tax act 2012 Nancy was neither insolvent nor in bankruptcy at the time of the loan modification. Tax act 2012   Nancy received a 2013 Form 1099-C from her bank in January 2014 showing canceled debt of $40,000 in box 2. Tax act 2012 Identifiable event code "F" appears in box 6. Tax act 2012 This box shows the reason the creditor has filed Form 1099-C. Tax act 2012 To determine if she must include the canceled debt in her income, Nancy must determine whether she meets any of the exceptions or exclusions that apply to canceled debts. Tax act 2012 Nancy determines that the only exception or exclusion that applies to her is the qualified principal residence indebtedness exclusion. Tax act 2012   Next, Nancy determines the amount, if any, of the $40,000 of canceled debt that was qualified principal residence indebtedness. Tax act 2012 Although Nancy has $440,000 of qualified principal residence indebtedness, part of her loan ($35,000) was not qualified principal residence indebtedness because it was used to pay off personal credit cards and college tuition for her son. Tax act 2012 Applying the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent the amount canceled is more than the amount of the debt (immediately before the cancellation) that is not qualified principal residence indebtedness. Tax act 2012 Thus, Nancy can exclude only $5,000 of the canceled debt as qualified principal residence indebtedness ($40,000 amount canceled minus $35,000 nonqualified debt). Tax act 2012   Because Nancy does not meet any other exception or exclusion, she checks only the box on line 1e of Form 982 and enters $5,000 on line 2. Tax act 2012 Nancy must also enter $5,000 on line 10b and reduce the basis of her main home by the $5,000 she excluded from income, bringing the adjusted basis in her home to $460,000 ($435,000 purchase price plus $30,000 substantial improvement minus $5,000). Tax act 2012 Nancy must also include the $35,000 nonqualified debt portion in income on Form 1040, line 21. Tax act 2012 You can see Nancy's Form 1099-C and a portion of her Form 1040 below. Tax act 2012 Nancy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Tax act 2012 Please click the link to view the image. Tax act 2012 Form 1099-C, Cancellation of Debt Nancy's 2013 Form 1040 This image is too large to be displayed in the current screen. Tax act 2012 Please click the link to view the image. Tax act 2012 Form 1040, U. Tax act 2012 S. Tax act 2012 Individual Income Tax Nancy's Form 982 This image is too large to be displayed in the current screen. Tax act 2012 Please click the link to view the image. Tax act 2012 Form 982 Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)              Example 2—Mortgage loan foreclosure. Tax act 2012    In 2005, John and Mary Elm bought a main home for $335,000. Tax act 2012 John and Mary took out a $320,000 mortgage loan to buy the home and made a down payment of $15,000. Tax act 2012 The loan was secured by the home and is a recourse debt, meaning John and Mary are personally liable for the debt. Tax act 2012   John and Mary became unable to make their mortgage loan payments and on March 1, 2013, when the outstanding balance of the mortgage loan was $315,000 and the FMV of the property was $290,000, the bank foreclosed on the property and simultaneously canceled the remaining mortgage debt. Tax act 2012 Immediately before the foreclosure, John and Mary's only other assets and liabilities were a checking account with a balance of $6,000, retirement savings of $13,000, and credit card debt of $5,500. Tax act 2012   John and Mary received a 2013 Form 1099-C showing canceled debt of $25,000 in box 2 ($315,000 outstanding balance minus $290,000 FMV) and an FMV of $290,000 in box 7. Tax act 2012 Identifiable event code "D" appears in box 6. Tax act 2012 This box shows the reason the creditor has filed Form 1099-C. Tax act 2012 In order to determine if John and Mary must include the canceled debt in income, they must first determine whether they meet any of the exceptions or exclusions that apply to canceled debts. Tax act 2012 In this example, John and Mary meet both the insolvency and qualified principal residence indebtedness exclusions. Tax act 2012 Their sample Form 1099-C is shown on this page. Tax act 2012   John and Mary complete the insolvency worksheet and determine that they were insolvent immediately before the cancellation because at that time their liabilities exceeded the FMV of their assets by $11,500 ($320,500 total liabilities minus $309,000 FMV of total assets). Tax act 2012 However, because the entire debt canceled is qualified principal residence indebtedness, the insolvency exclusion only applies if John and Mary elect to apply the insolvency exclusion instead of the qualified principal residence exclusion. Tax act 2012   John and Mary do not elect to apply the insolvency exclusion instead of the qualified principal residence exclusion because under the insolvency exclusion their exclusion would be limited to the amount by which they were insolvent ($11,500). Tax act 2012 Instead, John and Mary check box 1e of Form 982 to exclude the canceled debt under the qualified principal residence exclusion. Tax act 2012 Under the qualified principal residence exclusion, the amount that John and Mary can exclude is not limited because their qualified principal residence indebtedness is not more than $2 million and no portion of the loan was nonqualified debt. Tax act 2012 As a result, John and Mary enter the full $25,000 of canceled debt on line 2 of Form 982. Tax act 2012 Because John and Mary no longer own the home due to the foreclosure, John and Mary have no remaining basis in the home at the time of the debt cancellation. Tax act 2012 Thus, John and Mary leave line 10b of Form 982 blank. Tax act 2012   John and Mary must also determine whether they have a gain or loss from the foreclosure. Tax act 2012 John and Mary complete Table 1-1 (shown below) and find that they have a $45,000 loss from the foreclosure. Tax act 2012 Because this loss relates to their home, it is a nondeductible loss. Tax act 2012   John and Mary's Form 1099-C, Insolvency Worksheet, and Form 982 follow. Tax act 2012 John and Mary's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Tax act 2012 Please click the link to view the image. Tax act 2012 Form 1099-C, Cancellation of Debt Table 1-1. Tax act 2012 Worksheet for Foreclosures and Repossessions (for John and Mary Elm) Part 1. Tax act 2012 Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Tax act 2012 Otherwise, go to Part 2. Tax act 2012 1. Tax act 2012 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 $315,000. Tax act 2012 00 2. Tax act 2012 Enter the fair market value of the transferred property $290,000. Tax act 2012 00 3. Tax act 2012 Ordinary income from the cancellation of debt upon foreclosure or repossession. Tax act 2012 * Subtract line 2 from line 1. Tax act 2012 If less than zero, enter zero. Tax act 2012 Next, go to Part 2 $ 25,000. Tax act 2012 00 Part 2. Tax act 2012 Gain or loss from foreclosure or repossession. Tax act 2012   4. Tax act 2012 Enter the smaller of line 1 or line 2. Tax act 2012 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 $290,000. Tax act 2012 00 5. Tax act 2012 Enter any proceeds you received from the foreclosure sale   6. Tax act 2012 Add line 4 and line 5 $290,000. Tax act 2012 00 7. Tax act 2012 Enter the adjusted basis of the transferred property $335,000. Tax act 2012 00 8. Tax act 2012 Gain or loss from foreclosure or repossession. Tax act 2012 Subtract line 7 from line 6 ($ 45,000. Tax act 2012 00) * The income may not be taxable. Tax act 2012 See chapter 1 for more details. Tax act 2012 Insolvency Worksheet—John and Mary Elm Date debt was canceled (mm/dd/yy) 03/01/13 Part I. Tax act 2012 Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Tax act 2012 Credit card debt $ 5,500 2. Tax act 2012 Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 315,000 3. Tax act 2012 Car and other vehicle loans $ 4. Tax act 2012 Medical bills owed $ 5. Tax act 2012 Student loans $ 6. Tax act 2012 Accrued or past-due mortgage interest $ 7. Tax act 2012 Accrued or past-due real estate taxes $ 8. Tax act 2012 Accrued or past-due utilities (water, gas, electric) $ 9. Tax act 2012 Accrued or past-due child care costs $ 10. Tax act 2012 Federal or state income taxes remaining due (for prior tax years) $ 11. Tax act 2012 Judgments $ 12. Tax act 2012 Business debts (including those owed as a sole proprietor or partner) $ 13. Tax act 2012 Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Tax act 2012 Other liabilities (debts) not included above $ 15. Tax act 2012 Total liabilities immediately before the cancellation. Tax act 2012 Add lines 1 through 14. Tax act 2012 $ 320,500 Part II. Tax act 2012 Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Tax act 2012 Cash and bank account balances $ 6,000 17. Tax act 2012 Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 290,000 18. Tax act 2012 Cars and other vehicles $ 19. Tax act 2012 Computers $ 20. Tax act 2012 Household goods and furnishings (for example, appliances, electronics, furniture, etc. Tax act 2012 ) $ 21. Tax act 2012 Tools $ 22. Tax act 2012 Jewelry $ 23. Tax act 2012 Clothing $ 24. Tax act 2012 Books $ 25. Tax act 2012 Stocks and bonds $ 26. Tax act 2012 Investments in coins, stamps, paintings, or other collectibles $ 27. Tax act 2012 Firearms, sports, photographic, and other hobby equipment $ 28. Tax act 2012 Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 13,000 29. Tax act 2012 Interest in a pension plan $ 30. Tax act 2012 Interest in education accounts $ 31. Tax act 2012 Cash value of life insurance $ 32. Tax act 2012 Security deposits with landlords, utilities, and others $ 33. Tax act 2012 Interests in partnerships $ 34. Tax act 2012 Value of investment in a business $ 35. Tax act 2012 Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Tax act 2012 Other assets not included above $ 37. Tax act 2012 FMV of total assets immediately before the cancellation. Tax act 2012 Add lines 16 through 36. Tax act 2012 $ 309,000 Part III. Tax act 2012 Insolvency 38. Tax act 2012 Amount of Insolvency. Tax act 2012 Subtract line 37 from line 15. Tax act 2012 If zero or less, you are not insolvent. Tax act 2012 $ 11,500 John and Mary's Form 982 This image is too large to be displayed in the current screen. Tax act 2012 Please click the link to view the image. Tax act 2012 Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment)          Example 3—Mortgage loan foreclosure with debt exceeding $2 million limit. Tax act 2012    In 2011, Kathy and Frank Willow got married and entered into a contract with Hive Construction Corporation to build a house for $3,000,000 to be used as their main home. Tax act 2012 Kathy and Frank made a $400,000 down payment and took out a $2,600,000 mortgage to finance the remaining cost of the house. Tax act 2012 Kathy and Frank are personally liable for the mortgage loan, which is secured by the home. Tax act 2012   In November 2013, when the outstanding principal balance on the mortgage loan was $2,500,000, the FMV of the property fell to $1,750,000 and Kathy and Frank abandoned the property by permanently moving out. Tax act 2012 The lender foreclosed on the property and, on December 5, 2013, sold the property to another buyer for $1,750,000. Tax act 2012 On December 26, 2013, the lender canceled the remaining debt. Tax act 2012 Kathy and Frank have no tax attributes other than basis of personal-use property. Tax act 2012   The lender issued a 2013 Form 1099-C to Kathy and Frank showing canceled debt of $750,000 in box 2 (the remaining balance on the $2,500,000 mortgage debt after application of the foreclosure sale proceeds) and $1,750,000 in box 7 (FMV of the property). Tax act 2012 Identifiable event code "D" appears in box 6. Tax act 2012 This box shows the reason the creditor has filed Form 1099-C. Tax act 2012 Although Kathy and Frank abandoned the property, the lender did not need to also file a Form 1099-A because the lender canceled the debt in connection with the foreclosure in the same calendar year. Tax act 2012 Kathy and Frank are filing a joint return for 2013. Tax act 2012   Because the foreclosure occurred prior to the debt cancellation, Kathy and Frank first calculate their gain or loss from the foreclosure using Table 1-1. Tax act 2012 Because Kathy and Frank remained personally liable for the $750,000 debt remaining after the foreclosure ($2,500,000 outstanding debt immediately before the foreclosure minus $1,750,000 satisfied through the sale of the home), Kathy and Frank enter $1,750,000 on line 1 of Table 1-1 ($2,500,000 outstanding debt immediately before the foreclosure minus the $750,000 for which they remained liable). Tax act 2012 Completing Table 1-1, Kathy and Frank find that they have no ordinary income from the cancellation of debt upon foreclosure and that they have a $1,250,000 loss. Tax act 2012 Because this loss relates to their home, it is a nondeductible loss. Tax act 2012   Because the lender later canceled the remaining amount of the debt, Kathy and Frank must also determine whether that canceled debt is taxable. Tax act 2012 Immediately before the cancellation, Kathy and Frank had $15,000 in a savings account, household furnishings with an FMV of $17,000, a car with an FMV of $10,000, and $18,000 in credit card debt. Tax act 2012 Kathy and Frank also had the $750,000 remaining balance on the mortgage loan at that time. Tax act 2012 The household furnishings originally cost $30,000. Tax act 2012 The car had been fully paid off (so there was no related outstanding debt) and was originally purchased for $16,000. Tax act 2012 Kathy and Frank had no adjustments to the cost basis of the car. Tax act 2012 Kathy and Frank had no other assets or liabilities at the time of the cancellation. Tax act 2012 Kathy and Frank complete the insolvency worksheet to calculate that they were insolvent to the extent of $726,000 immediately before the cancellation ($768,000 of total liabilities minus $42,000 FMV of total assets). Tax act 2012   At the beginning of 2014, Kathy and Frank had $9,000 in their savings account and $15,000 in credit card debt. Tax act 2012 Kathy and Frank also owned the same car at that time (still with an FMV of $10,000 and basis of $16,000) and the same household furnishings (still with an FMV of $17,000 and a basis of $30,000). Tax act 2012 Kathy and Frank had no other assets or liabilities at that time. Tax act 2012 Kathy and Frank no longer own the home because the lender foreclosed on it in 2013. Tax act 2012   Because the canceled debt is qualified principal residence indebtedness, the insolvency exclusion does not apply unless Kathy and Frank elect to apply the insolvency exclusion instead of the qualified principal residence indebtedness exclusion. Tax act 2012 The maximum amount that Kathy and Frank can treat as qualified principal residence indebtedness is $2,000,000. Tax act 2012 The remaining $500,000 ($2,500,000 outstanding mortgage loan minus $2,000,000 limit on qualified principal residence indebtedness) is not qualified principal residence indebtedness. Tax act 2012 Because only a part of the loan is qualified principal residence indebtedness, Kathy and Frank must apply the ordering rule to the canceled debt. Tax act 2012 Under the ordering rule, the qualified principal residence indebtedness exclusion applies only to the extent that the amount canceled ($750,000) exceeds the amount of the loan (immediately before the cancellation) that is not qualified principal residence indebtedness ($500,000). Tax act 2012 This means that Kathy and Frank can only exclude $250,000 ($750,000 amount canceled minus $500,000 nonqualified debt) under the qualified principal residence indebtedness exclusion. Tax act 2012   Kathy and Frank do not elect to have the insolvency exclusion apply instead of the qualified principal residence exclusion. Tax act 2012 Nonetheless, they can still apply the insolvency exclusion to the $500,000 nonqualified debt because it is not qualified principal residence indebtedness. Tax act 2012 Kathy and Frank can exclude the remaining $500,000 canceled debt under the insolvency exclusion because they were insolvent immediately before the cancellation to the extent of $726,000. Tax act 2012 Thus, Kathy and Frank check the boxes on lines 1b and 1e of Form 982 and enter $750,000 on line 2 ($250,000 excluded under the qualified principal residence indebtedness exclusion plus $500,000 excluded under the insolvency exclusion). Tax act 2012   Next, Kathy and Frank reduce their tax attributes using Part II of Form 982. Tax act 2012 Because Kathy and Frank no longer own the home due to the foreclosure, Kathy and Frank have no remaining basis in the home at the time of the debt cancellation. Tax act 2012 Thus, Kathy and Frank leave line 10b of Form 982 blank. Tax act 2012 However, Kathy and Frank are also excluding nonqualified debt under the insolvency exclusion. Tax act 2012 As a result, Kathy and Frank must reduce the basis of property they own based on the amount of canceled debt they are excluding from income under the insolvency rules. Tax act 2012 Because Kathy and Frank have no tax attributes other than basis of personal-use property to reduce, Kathy and Frank figure the amount they must include on line 10a of Form 982 by taking the smallest of: The $46,000 bases of their personal-use property held at the beginning of 2014 ($16,000 basis in the car plus $30,000 basis in household furnishings), The $500,000 of the nonbusiness debt (other than qualified principal residence indebtedness) that they are excluding from income on line 2 of Form 982, or The $43,000 excess of the total bases of the property and the amount of money they held immediately after the cancellation over their total liabilities immediately after the cancellation ($15,000 in savings account plus $30,000 basis in household furnishings plus $16,000 adjusted basis in car minus $18,000 credit card debt). Tax act 2012 Kathy and Frank enter $43,000 on Form 982, line 10a and reduce their bases in the car and the household furnishings in proportion to the total adjusted bases in all their property. Tax act 2012 Kathy and Frank reduce the basis in the car by $14,956. Tax act 2012 52 ($43,000 x $16,000/$46,000). Tax act 2012 And they reduce the basis in the household furnishings by $28,043. Tax act 2012 48 ($43,000 x $30,000/$46,000). Tax act 2012   Following are Kathy and Frank's sample forms and worksheets. Tax act 2012 Frank and Kathy's 2013 Form 1099-C, Cancellation of Debt This image is too large to be displayed in the current screen. Tax act 2012 Please click the link to view the image. Tax act 2012 Form 1099-C, Cancellation of Debt Table 1-1. Tax act 2012 Worksheet for Foreclosures and Repossessions (for Frank and Kathy Willow) Part 1. Tax act 2012 Complete Part 1 only if you were personally liable for the debt (even if none of the debt was canceled). Tax act 2012 Otherwise, go to Part 2. Tax act 2012 1. Tax act 2012 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 $1,750,000. Tax act 2012 00 2. Tax act 2012 Enter the fair market value of the transferred property $1,750,000. Tax act 2012 00 3. Tax act 2012 Ordinary income from the cancellation of debt upon foreclosure or repossession. Tax act 2012 * Subtract line 2 from line 1. Tax act 2012 If less than zero, enter zero. Tax act 2012 Next, go to Part 2 $0. Tax act 2012 00 Part 2. Tax act 2012 Gain or loss from foreclosure or repossession. Tax act 2012   4. Tax act 2012 Enter the smaller of line 1 or line 2. Tax act 2012 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. Tax act 2012 $1,750,000. Tax act 2012 00 5. Tax act 2012 Enter any proceeds you received from the foreclosure sale   6. Tax act 2012 Add line 4 and line 5 $1,750,000. Tax act 2012 00 7. Tax act 2012 Enter the adjusted basis of the transferred property $3,000,000. Tax act 2012 00 8. Tax act 2012 Gain or loss from foreclosure or repossession. Tax act 2012 Subtract line 7 from line 6 ($1,250,000. Tax act 2012 00) * The income may not be taxable. Tax act 2012 See chapter 1 for more details. Tax act 2012    Insolvency Worksheet—Frank and Kathy Willow Date debt was canceled (mm/dd/yy) 12/26/13 Part I. Tax act 2012 Total liabilities immediately before the cancellation (do not include the same liability in more than one category) Liabilities (debts) Amount Owed Immediately Before the Cancellation 1. Tax act 2012 Credit card debt $ 18,000 2. Tax act 2012 Mortgage(s) on real property (including first and second mortgages and home equity loans) (mortgage(s) can be on personal residence, any additional residence, or property held for investment or used in a trade or business) $ 750,000 3. Tax act 2012 Car and other vehicle loans $ 4. Tax act 2012 Medical bills owed $ 5. Tax act 2012 Student loans $ 6. Tax act 2012 Accrued or past-due mortgage interest $ 7. Tax act 2012 Accrued or past-due real estate taxes $ 8. Tax act 2012 Accrued or past-due utilities (water, gas, electric) $ 9. Tax act 2012 Accrued or past-due child care costs $ 10. Tax act 2012 Federal or state income taxes remaining due (for prior tax years) $ 11. Tax act 2012 Judgments $ 12. Tax act 2012 Business debts (including those owed as a sole proprietor or partner) $ 13. Tax act 2012 Margin debt on stocks and other debt to purchase or secured by investment assets other than real property $ 14. Tax act 2012 Other liabilities (debts) not included above $ 15. Tax act 2012 Total liabilities immediately before the cancellation. Tax act 2012 Add lines 1 through 14. Tax act 2012 $ 768,000 Part II. Tax act 2012 Fair market value (FMV) of assets owned immediately before the cancellation (do not include the FMV of the same asset in more than one category) Assets FMV Immediately Before  the Cancellation 16. Tax act 2012 Cash and bank account balances $ 15,000 17. Tax act 2012 Real property, including the value of land (can be main home, any additional home, or property held for investment or used in a trade or business) $ 18. Tax act 2012 Cars and other vehicles $ 10,000 19. Tax act 2012 Computers $ 20. Tax act 2012 Household goods and furnishings (for example, appliances, electronics, furniture, etc. Tax act 2012 ) $ 17,000 21. Tax act 2012 Tools $ 22. Tax act 2012 Jewelry $ 23. Tax act 2012 Clothing $ 24. Tax act 2012 Books $ 25. Tax act 2012 Stocks and bonds $ 26. Tax act 2012 Investments in coins, stamps, paintings, or other collectibles $ 27. Tax act 2012 Firearms, sports, photographic, and other hobby equipment $ 28. Tax act 2012 Interest in retirement accounts (IRA accounts, 401(k) accounts, and other retirement accounts) $ 29. Tax act 2012 Interest in a pension plan $ 30. Tax act 2012 Interest in education accounts $ 31. Tax act 2012 Cash value of life insurance $ 32. Tax act 2012 Security deposits with landlords, utilities, and others $ 33. Tax act 2012 Interests in partnerships $ 34. Tax act 2012 Value of investment in a business $ 35. Tax act 2012 Other investments (for example, annuity contracts, guaranteed investment contracts, mutual funds, commodity accounts, interests in hedge funds, and options) $ 36. Tax act 2012 Other assets not included above $ 37. Tax act 2012 FMV of total assets immediately before the cancellation. Tax act 2012 Add lines 16 through 36. Tax act 2012 $ 42,000 Part III. Tax act 2012 Insolvency 38. Tax act 2012 Amount of Insolvency. Tax act 2012 Subtract line 37 from line 15. Tax act 2012 If zero or less, you are not insolvent. Tax act 2012 $ 726,000    Frank and Kathy's Form 982 This image is too large to be displayed in the current screen. Tax act 2012 Please click the link to view the image. Tax act 2012 Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment) Prev  Up  Next   Home   More Online Publications