The abandonment of property is a disposition of property. You
abandon property when you voluntarily give up possession of the
property with the intention of ending your ownership but without
passing it on to anyone else.
Loss from abandonment of business or investment property is
deductible as an ordinary loss, even if the property is a capital
asset. The loss is the property's adjusted basis when
abandoned. This rule also applies to leasehold improvements the lessor
made for the lessee that were abandoned. However, if the property is
later foreclosed on or repossessed, gain or loss is figured as
discussed later. The abandonment loss is deducted in the tax year in
which the loss is sustained.
You cannot deduct any loss from abandonment of your home or other
property held for personal use.
Ann abandoned her home that she bought for $200,000. At the time
she abandoned the house, her mortgage balance was $185,000. She has a
nondeductible loss of $200,000 (the adjusted basis). If the bank later
forecloses on the loan or repossesses the house, she will have to
figure her gain or loss as discussed later under Foreclosures and
Cancellation of debt.
If the abandoned property secures a debt for which you are
personally liable and the debt is canceled, you will realize ordinary
income equal to the canceled debt. This income is separate from any
loss realized from abandonment of the property. Report income from
cancellation of a debt related to a business or rental activity as
business or rental income. Report income from cancellation of a
nonbusiness debt as other income on line 21, Form 1040.
However, income from cancellation of debt is not taxed if any of
the following conditions apply.
- The cancellation is intended as a gift.
- The debt is qualified farm debt (see chapter 4 of
Farmer's Tax Guide).
- The debt is qualified real property business debt (see
chapter 5 of Publication 334,
Tax Guide for Small
- You are insolvent or bankrupt (see Publication 908).
Forms 1099-A and 1099-C.
If your abandoned property secures a loan and the lender knows the
property has been abandoned, the lender should send you Form
1099-A showing information you need to figure your loss from the
abandonment. However, if your debt is canceled and the lender must
file Form 1099-C, the lender may include the information about
the abandonment on that form instead of on Form 1099-A. The
lender must file Form 1099-C and send you a copy if the amount
of debt canceled is $600 or more and the lender is a financial
institution, credit union, federal government agency, or any
organization that has a significant trade or business of lending
money. For abandonments of property and debt cancellations occurring
in 2001, these forms should be sent to you by January 31, 2002.