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About John Stancil, CPA
Expertise
I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I teach tax and accounting at a small church-related college. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a part time tax practice for over 30 years. I am a member of the AICPA, National Society of Tax Professionals, and the Institute of Management Accountants.
Experience
I hold a doctorate in Accounting, and four professional certifications: CPA, CMA, CFM, and CIA. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I write a monthly tax column for the local newspaper.
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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Tax liability for rental property disposal
Expert: John Stancil, CPA
Date: 9/4/2008
Subject: Tax liability for rental property disposal
Question
QUESTION: Hi John,
I have a rental house which has become vacant and I am no longer able to pay the mortgage. I requested a deed-in-lieu. The bank suggested that I first try a short sale then after 60 days or so, if no sale, then reapply for deed-in-lieu. The house will need new carpets and paint in order to how well. Is there any downside to simply letting the house go directly to foreclosure instead of all the intermediate steps. i really don't want this property as it is worth $100,000 and the mortgage balance is about $240,000.
Would I have tax liability based on the following figures?
Mortgage Balance - $240,000
Short Sale Proceeds - $100,000
Original Basis - $170,000
Depreciation over 3 yrs - $17,000"
I figure that I would get a 1099 from the bank for $ 140,000.
Thanks very much...
ANSWER: Tony,
Thanks for your question.
Based on the numbers you gave, you would have debt cancellation income of $140,000, receiving a 1099 from the bank for that amount.
However, this will be treated as a sale, your selling price would be the proceeds of the short sale (or FMV whichever is lower). Your basis is 170,000-17,000 or 153,000. So you would have a 53,000 loss on the sale, treated as a capital loss.
Hope this helps.
John Stancil, CPA
---------- FOLLOW-UP ----------
QUESTION: John,
Thanks for all your help.
What if I simply have the property go to foreclosure? Would my tax liability be based on the sale price that the bank gets substituted for the $100,000 I stated earlier for the short sale? Is there any advantage to my good credit standing for doing a short sale versus foreclosure?
Answer
If it goes to foreclosure the liability would be based on the FMV as listed by the bank. This would be the sale price that the bank was able to obtain. I have seen a lot of these with very low FMV's.
I can't answer the part about your credit standing, that's not a tax question and I am not qualified to render and answer.
Hope this helps.
John Stancil, CPA
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