Case: Short sale of investment property resulting in exclusion of loan repayments, reduction in basis (TC) (IRC §108)

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June 24, 2021 5:00 a.m.

The short sales resulted in the repayment of debt eligible for the exclusion of gross income and a decrease in the base in the same tax year, according to the US Internal Revenue Service. In 2009, the taxpayer acquired 27 investment properties for a total of $ 1.7 million. All loans were kept in one bank. In 2012, the taxpayer had problems with paying off loans. In 2012, the taxpayer sold 15 properties on a “short sale” basis for $ 241,000 in revenue. Following the sale, the taxpayer loans were renegotiated and the bank issued Form 1099-C indicating that the debt was repaid in the amount of $ 750,000. In 2013, the taxpayer sold 7 more objects …

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