Client bought a condo rental unit in Fla. in 2006 at top of the market for 425k. Mortgaged for about 395k. They rented it out in 2006 and 2007, schedule E, etc. Short sold it in 2008 for 248k. Bank forgave about 130k in unpaid mortgage. I just want to confirm that 1) they will have about 130k ordinary income in 2008 for forgiven debt and 2) can show capital loss for difference between condo basis and sale price of approx. 248k. Thanks.
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We will probably see more of these..
I do not know. I think it is form 982 that we have to get to know for debt and mortgage reductions. If you are right you could be in terrible position. Ordinary income with a capital loss. (Is it 1231 ordinary deduction). There used to be an election to offset mortgage reductions to property basis-that is still there, but does that work in short sales?
How often have we have capital loses on real estate??? Short sales with real estate.. -
A loss on a rental is a 1231 loss which will be ordinary.Comment
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Right
Do you think that amt might kick in? They usually pay amt.Comment
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982 is necessary if they are exempting any of the COD for any reason. If they use the reduction of tax attributes, they could convert some of the ordinary income to capital gain by the basis reduction method.Comment
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