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Question
John,
I purchased a home in 2007 and lived in it as my primary home until the middle of 2011 when I rented it out.  I am contemplating doing a short sale on the home which should result in a cancellation of debt of about $50,000.  Will the Mortgage Forgiveness Debt Relief Act apply in this case so that I will not have to declare the $50,000 as taxable income?  If not, will moving back into the home before the sale change anything?

Thank you for your help.

Answer
Michael,

Thanks for your question.

Unfortunately, for you, the law was written so that when it became a rental unit, it was no longer classified as a primary residence.  The ability to exclude the COD income is contingent on it being your primary residence. So right now, it is classified as a rental and would not be eligible to exclude the COD income.

If you moved back in, it would become your primary residence.  If it was your primary residence for 24 of the previous 60 months, it would qualify for the exclusion of the COD income.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

Expertise

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

Experience

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.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
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.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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