Page 96 - Virtual Currencies

12:10 - 7-Feb-2023
Page 5 of 42
Fileid: … tions/p544/2022/a/xml/cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Lesser of adjusted basis or fair market value • The debt is qualified principal residence in-
at time of the change . . . . . . . . . . . . . . . $70,000 Abandonments debtedness.
Plus: Cost of any improvements and any File Form 982, Reduction of Tax Attributes Due
other additions to basis after the to Discharge of Indebtedness (and Section
change . . . . . . . . . . . . . . . . . . . . . . . . . -0- The abandonment of property is a disposition of 1082 Basis Adjustment), to report the income
70,000 property. You abandon property when you vol-
Minus: Depreciation and any other decreases untarily and permanently give up possession exclusion.
to basis after the change . . . . . . . . . . . . . (12,620) and use of the property with the intention of
57,380 ending your ownership but without passing it on Forms 1099-A and 1099-C. If you abandon
property that secures a loan and the lender
Minus: Amount you realized from the to anyone else. Generally, abandonment is not knows the property has been abandoned, the
treated as a sale or exchange of the property. If
sale . . . . . . . . . . . . . . . . . . . . . . . . . . . (55,000) lender should send you Form 1099-A showing
Deductible loss . . . . . . . . . . . . . . . $2,380 the amount you realize (if any) is more than information you need to figure your loss from
your adjusted basis, then you have a gain. If the abandonment. However, if your debt is can-
your adjusted basis is more than the amount
Gain. If you have a gain on the sale, you must you realize (if any), then you have a loss. celed and the lender must file Form 1099-C, the
generally recognize the full amount of the gain. lender may include the information about the
You figure the gain by subtracting your adjusted Loss from abandonment of business or in- abandonment on that form instead of on Form
basis from your amount realized, as described vestment property is deductible as a loss. A 1099-A, and send you Form 1099-C only. The
earlier. loss from an abandonment of business or in- lender must file Form 1099-C and send you a
You may be able to exclude all or part of the vestment property that is not treated as a sale copy if the amount of debt canceled is $600 or
gain if you owned and lived in the property as or exchange is generally an ordinary loss. This more and the lender is a financial institution,
your main home for at least 2 years during the rule also applies to leasehold improvements the credit union, federal government agency, or any
5-year period ending on the date of sale. How- lessor made for the lessee that were aban- organization that has a significant trade or busi-
ever, you may not be able to exclude the part of doned. Loss from abandonment of a portion of ness of lending money. For abandonments of
the gain allocated to any period of nonqualified a MACRS asset is deductible, if you make a property and debt cancellations occurring in
use. partial disposition election. 2022, these forms should be sent to you by
For more information, including special rules January 31, 2023.
that apply if the home sold was acquired in a Partial disposition election. You make a
(or gain) on your timely filed original tax return, Foreclosures
like-kind exchange, see Pub. 523. Also, see partial disposition election by reporting the loss
Like-Kind Exchanges, later.
including extensions, for the tax year in which and Repossessions
Partial Dispositions of the portion of a MACRS asset is abandoned. If If you do not make payments you owe on a loan
you make a partial disposition election for an
MACRS Property asset included in one of the asset classes 00.11 secured by property, the lender may foreclose
through 00.4 of Revenue Procedure 87-56, you
must classify the replacement portion under the on the loan or repossess the property. The fore-
You may elect to recognize a partial disposition same asset class as the disposed portion of the closure or repossession is treated as a sale or
of a MACRS asset, and report the gain, loss, or asset. The adjusted basis of the disposed por- exchange from which you may realize a gain or
other deduction on a timely filled return, includ- tion of the asset is used to figure gain or loss. loss. This is true even if you voluntarily return
ing extensions, for the year of the disposition. In See Adjusted Basis in Pub. 551 for more details the property to the lender. You may realize ordi-
some cases, however, you are required to re- and examples. nary income from the cancellation of debt if the
port the gain or loss on the partial disposition of loan balance is more than the fair market value
a MACRS asset (see Required partial disposi- If the property is foreclosed on or repos- of the property.
tions, later). MACRS assets include buildings sessed in lieu of abandonment, gain or loss is
(and their structural components) and other tan- figured as discussed later under Foreclosures Buyer's (borrower's) gain or loss. You figure
gible depreciable property placed in service af- and Repossessions. The abandonment loss is and report gain or loss from a foreclosure or re-
ter 1986 that is used in a trade or business or deducted in the tax year in which the loss is possession in the same way as gain or loss
for the production of income. sustained. from a sale or exchange. The gain or loss is the
difference between your adjusted basis in the
For more information on partial dispositions If the abandoned property is secured by transferred property and the amount realized.
of MACRS property, see Treasury Regulations debt, special rules apply. The tax consequen- See Gain or Loss From Sales and Exchanges,
section 1.168(i)-8(d). ces of abandonment of property that is secured earlier.
by debt depend on whether you are personally
Partial disposition election. If you elect to liable for the debt (recourse debt) or you are not You can use Table 1-2 to figure your
gain or loss from a foreclosure or re-
recognize a partial disposition of a MACRS as- personally liable for the debt (nonrecourse TIP
set, report the gain or loss (if any) on Form debt). For more information, including exam- possession.
4797, Part I, II, or III, as applicable. See the In- ples, see chapter 3 of Pub. 4681.
structions for Form 4797. Amount realized on a nonrecourse debt.
You cannot deduct any loss from aban- If you are not personally liable for repaying the
Required partial dispositions. Report the ! donment of your home or other prop- debt (nonrecourse debt) secured by the trans-
gain or loss (if any) on the following partial dis- CAUTION erty held for personal use only. ferred property, the amount you realize includes
positions of MACRS assets on Form 4797, Part the full debt canceled by the transfer. The full
I, II, or III, as applicable. Cancellation of debt. If the abandoned prop- canceled debt is included even if the fair market
• Sale of a portion of a MACRS asset. erty secures a debt for which you are personally value of the property is less than the canceled
• Involuntary conversion of a portion of a liable and the debt is canceled, you may realize debt.
MACRS asset, other than from a casualty ordinary income equal to the canceled debt.
or theft. This income is separate from any loss realized Example 1. You bought a new car for
• Like-kind exchange of a portion of a from abandonment of the property. $15,000. You paid $2,000 down and borrowed
MACRS asset (Form 4797, line 5 or 16). You must report this income on your tax re- the remaining $13,000 from the dealer's credit
company. You are not personally liable for the
turn unless one of the following applies. loan (nonrecourse debt), and pledge the new
• The cancellation is intended as a gift. car as security. The credit company repos-
• The debt is qualified farm debt. sessed the car because you stopped making
• The debt is qualified real property business loan payments. The balance due after taking
debt. into account the payments you made was
• You are insolvent or bankrupt.
Chapter 1 Gain or Loss Page 5