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I purchased my first residence for $130,000 in 1996 and then converted it into a rental property from 2004 until 2011. In 2011, the foreclosed on the property. The bank has furnished a 1099-C form for the cancelled debt of $180,000. When I converted my residence to the rental property, the value was about $285,000, but when it was foreclosed, the value was about $170,000. How do I report the loss and cancelled debt on my 2011 tax return?
ANSWER
The BIDaWIZ Team's Answer:
The IRS requires that you report the foreclosure and the resulting loss on Form 4797. In addition, you must report any cancelled debt that is taxable as ordinary income on your Form 1040.
