what happens if I lose an investment home to foreclosure, will I still be hit with an IRS tax bill?
lets say the loan is 400k and the property get reverted to the bank at a value of 250k will i have to claim the difference as income?
what happens if I lose an investment home to foreclosure, will I still be hit with an IRS tax bill?
29
Mar
Ryan M
March 29, 2010 at 11:42 pm
Yes you will have to claim $150k of income on that sale. You RECEIVED 400k, you only paid back 250k. That means that you received a free 150k.You are NOT entitled to receive 150k of money tax free. Of course that is income. Next time do not get your investment advice from HGTV. Housing prices DO NOT always go up. 30 seconds of actual research would have showed you that.
Spock (rhp)
March 29, 2010 at 11:59 pm
1. the bank will ask you for the 150k difference. even in CA, investment properties as collateral do not let you walk away free.
2. they’ll sue, etc. for the 150k. if you pay, the suit goes away and there’s no income tax consequence other than you get to deduct the 150K as a capital loss [plus your basis when the property is seized less the 250k value on transfer], subject to the usual capital loss rules.
2b. if you don’t pay, they’ll try to force you into bankruptcy — get as much as possible. if you do go bankrupt, the potential income tax liability you’re concerned about evaporates, as does your capital loss carryforward.