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Tax Law (Questions About Taxes)/Forgiven debt and Form 982

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Question
We took out a home equity loan of $500,000 and used the money to loan to our Construction company C Corp. With the terrible real estate market, the company lost all of this money. We were able to get a settlement from the bank. We paid $125,000 and the bank forgave $375,000, for which we received a 1099c. We qualify for the insolvency exemption. What tax attribute do I reduce on Form 982? I do not want to reduce the basis in our home, even though it was the security for the loan. I want to reduce the amount that the company owes me on the loan, basically forgiving it the debt. Can I put the full amount of $375,000 on Line 10A?
Thank you for any help.

Answer
Suzanne,

Thanks for your question.

What you did with the proceeds and what was pledged for the loan are two separate, unrelated items for this purpose.

The loan was on the house, you must reduce the basis in the house.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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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 www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

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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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FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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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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DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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