Reporting a Foreclosure and Canceled Debt (continued)

Case Study (continued)

If Frank had been able to negotiate a workout with his mortgage lender (reducing the amount he owed on the mortgage and staying in the home), he would not have completed Form 8949 and Schedule D because he had not disposed of the asset.

In this situation, let's assume Frank's lender agreed to reduce his mortgage debt from $195,000 to $175,000. The lender issued Frank a Form 1099-C showing $20,000 of canceled debt. Frank's Form 982 would be completed, but the amount of debt forgiven (or his basis in the home, whichever was smaller) would need to be entered on the form, and his basis in the home would be decreased by that amount.

Click here to review Frank's Form 1099-C for the mortgage workout.

Click here to review Frank's Form 982 for the mortgage workout.