Date: 11 Mar 2009
Hello Michael... picked your article up off the internet and it was very helpful to me... I'd like to ask you one question, and hopefully you can help me.
Does the short sale or foreclosure of property have to be of a primary residence at the time of the sale to qualify for the exclusion of cancellation of indebtedness? What if it was originally used as a principal residence but converted to a rental three years later and sold after the conversion?
I am in a bit of a bind and your assistance in answering this would be much appreciated.
Date: 6 Apr 2009
Since the property was converted to a rental, it doesn’t qualify for the exclusion of income for cancellation of indebtedness for a principal residence. Since the property was rental property, you might be able to offset the loss for the sale against the income from debt cancellation. You also might qualify for the exclusion of cancellation of indebtedness from insolvency.
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