Hello,
I have a 1st and 2nd with the same bank. My mortgage bank contacted me and offered to modify my ARM 1st Mtg to a fixed rate and forgive $200k. We did it and received a 1099-c for the $200 with my tax id and one for $200 with my wife's tax id (same loan number on form).

A few questions:
1) I called the bank and they told me they had to send a 1099-c to each of us. There's no problem with this? Don't want the IRS seeing two and thinking it was $400k.

2) How do I know if this is recourse or non-recourse liability? (I assume it is non-recourse) Also, is the liability amount the total of both the 1st and second or just the 1st that was modified?

3) Some of the loan was used for consolidation. So that will reduce the amount of Qualified Primary Residence debt (a bit) that I can exclude.

We were also Insolvent by about $150k at the time of the modification, due to the nearly 50% reduction in our property value.

a) Best to claim QPR exclusion first and Insolvency for any balance?
b) Any negative to either exclusion?
c) Any trouble with mortgage interest deduction once posting non-QPR debt portion?
d) Any tips on avoiding "red flags"?

4) What is the Basis of the Principle Residence before reduction (Purchase price plus improvements?), basis reduction (amount excluded as Qualified Primary Residence, not Insolvency Exclusion?) and basis after reduction (this is not necessarily the same amount as your Fair Market Value?) ?


Thanks