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Tax Law (Questions About Taxes)/Damaged Rental Property causing Short Sale



I owned a rental in Charlotte, NC for 5+ years. I had to do a short sale of my property lastyear (2012. Not only did the tenant put me severly behind in my mortgage payments by not paying me the full rent if any rent for the last few months. But when she vacated, she stole my applicances and all my light fixtures and severly damaged the walls prior to leaving. Making it impossible for me to get caught up on the mortgage payments or to correct the damage to the property to continue to rent it, so I was forced to do a short sale. What would I be to claim on my taxes if anything in a situation like this? My mortgages totaled $150,000 but it sold for only $92,000 with a fair market value of $110,000.   

Any help would greatly appreciated.


Thanks for your question.

First, you can take a casualty/loss deduction for the damages and stolen property.  However, they will reduce the basis in you house.

Second, if you received a 1099-C you have cancellation of debt it income for the excess of the amount owed over FMV.

Second, You have a deemed sale.  The selling price is the total of the mortgage balance owed or the fair market value, depending on state law.  Subtract your adjusted basis from the sale price and you have your taxable gain or loss.  Your adjusted basis is original cost plus capital improvements minus depreciation minus any deductible casualty/theft losses. If there is any cancellation of debt, this will further reduce your basis. This is reported on Form 4797.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA


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 am Professor Emeritus at Florida Southern 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 CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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