The abandonment of property is a disposition of property. You abandon property when you voluntarily and permanently give up
possession and use of
the property with the intention of ending your ownership but without passing it on to anyone else.
Loss from the 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. However, if the property is later foreclosed on or repossessed, gain or loss
is figured as discussed
earlier. 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.
Example.
In 2004, Anne purchased a home for $200,000. In 2007, Anne lost her job and was unable to continue making her mortgage loan
payments. Because her
mortgage loan balance was $185,000 and the FMV of her home was only $150,000, Anne decided to abandon her home by permanently
moving out on August 1,
2007. Anne 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 nondeductible loss as discussed earlier in Chapter 2, Foreclosures and Repossessions.
Canceled 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. You must report this income
on your return unless
certain exceptions or exclusions apply. See Chapter 1,
Canceled Debts, for more details.
Forms 1099-A and 1099-C.
If you abandon property which 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 can
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 2007,
these forms should have
been sent to you by January 31, 2008.
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