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Question
Hi Michael.
We have two rentals that are going to short sale. We bought them as an investment (stupidly). One is a duplex we bought for 400K, there was very little income, so we tried to sell it for the past year. We used our line of credit to keep making payments. Our line of credit for this duplex is up to 80K becaue we put money down buying it also. Now it may sell on a short sale for 300K if we are lucky. With the loss we took (100K or more), will we be taxed as if we made a gain?
The other situation is a condo we bought for 300K, we put 30K, had a second loan that I paid off for 30K, not knowing this was all going to happen, as it was a high interest rate. From lost rent, eviction and sitting empty for a year while we tried to sell it, we again lost about 100K. Our line of credit sits at 200K.
The other house just sold for 100K less than we paid for it but again we lost about 100K because of evictions, sitting empty while we tried to sell, and just loss of value.
What is the Irs going to do to us?
Although there may be room to negotiate a reduction in the tax I am afraid the forgiven debt on a rental property is taxable as wages.I recommend you retain a CPA or ax attorney to complete your returns. There are ways to reduce the tax substantially.
As to your other issues the bottom line is the same. There are ways to take the loss and even with forgiven debt you may be able to offset the taxes. Contact your local real estate investment association and get a referral for a tax attorney or CPA that specializes in real estate. They are a little more expensive but well worth it.
Good luck
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Answers by Expert:
Michael Brotherton
Expertise
Consumer/Debtor Rights Advocate. Mike Brotherton is a negotiator with over 30 years experience in consumer lending and collections. Mike has 30 years in the credit and collections industry as a former loan officer, debt collector and manager of two finance companies over several years. We are well versed in Loss Mitigation practices and the legal collection process. We have helped literally thousands of people over many years overcome serious financial problems such as foreclosure, creditor lawsuits and abuse by debt collectors. For more information about resolving your "financial emergency" visit www.financialemergency.com. We actively promote Fair Debt Collection Practices and other consumer protection laws. We teach DEBTOR RIGHTS and enforcement of those rights. The more informed you are of your rights and the credit collections practices of creditors the more peace you can have dealing with your FINANCIAL EMERGENCY. Most financial problems are fairly common and as such have some very common solutions. The key is understanding your rights in the collection process and how to enforce them if need be. Primary business- Debtor Rights Advocacy and Debt Mitigation relating to foreclosure, creditor lawsuits, and other serious financial problems. www.financialemergency.com (copy and paste in browser).
Experience
28 years in financial services industry as a loan officer and debt collctor. Developed bankruptcy and loss prevention manual for large finance company for manager training. 15 years as a debt counselor and consumer advocate.
Education/Credentials
Veterans sponsored OJT Manager Candidate Scool for AVCO Financial Services, Keystones to Management for ITT Financial Services, Certified Finance Management for Associates Financial Services.
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