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Relief of Mortgage debt (non-recourse)

October 07, 2016 • Mark Pariser • Log In to Post Comments

We have a client who received a 1099-C for a foreclosure.  It was a California home and primary residence. The debt was purchase money.  The mortgage servicer indicated that the client was personally liable on the 1099.  We disagree and will attempt to have them revise the 1099.  In the meantime the return is due on October 17.  We've excluded the COD for federal purposes and plan on showing a sale of the home with the proceeds being the amount of the nonrecourse debt relief on CA Sch D.  Is this the best way of handling?


Either it is a nonrecourse note or it isn't so you can't treat it as a sale for CA and excludable  COD for state. If it is truely nonrecourse debt treat both as a sale but if you don't get a corrected 1099 you might have a fight with the IRS. Either way you need to do the same thing federal and state.


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