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Tax Law (Questions About Taxes)/Cancellation of Debt on Rental Property


I bought a condo in 2005 and lived in it until April of 2011. Then I rented the condo and move to other house in the same state. In March of 2012, I short sale the Condo and have a debt cancellation of around $137,000.00
My question is:
Can I exclude the debt cancellation under primarg residence exclusion or not?
Should I treat the rental as a sale on form 4797?


Thanks for your question.

Since you occupied the condo as your primary residence for at least 24 of the previous 60 months, it does qualify as your primary residence.  Assuming you meet the other requirements, you may exclude the COD income from your taxable income.  Use Form 982 for the exclusion.

Hope this helps.

John Stancil, CPA  

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

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