Discussion:Little foreclosure question

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Discussion Forum Index --> Advanced Tax Questions --> Little foreclosure question
Discussion Forum Index --> Tax Questions --> Little foreclosure question

Woodstock (talk|edits) said:

15 March 2009
I think I have this figured out, but I just need a knod from my TA experts.

Client has condo that was primary residence for five years. He rented home out for one year while he lived abroad. While he was abroad, his home went into foreclosure. He moved back, declared bankruptcy, and condo is foreclosed.

So, we are claiming the rental income/exp on sch e with depreciation. Then reporting the sale due to foreclosure, however, he will qualify for 121, so no cap gain income there. The only taxable event is the recapture of depreciation (which is ridiculous, because this all happened last year!).

This was a recourse loan, and he is insolvent. Does my assessment of this seem correct?

Woodstock (talk|edits) said:

16 March 2009
Any thoughts - anyone? Thanks!

RoyDaleOne (talk|edits) said:

16 March 2009
No, was the condo transferred to the bankrupt estate, see Section 108 for income exclusion for persons in bankruptcy or are insolvent.

IDrinkYour Milkshake (talk|edits) said:

16 March 2009
If he declared BK, of course he was insolvent!

As long as his 121 exclusion covers his gain, you should be right. Why is depreciation recapture ridiculous? You're getting an ordinary deduction for the same amount!

IDrinkYour Milkshake (talk|edits) said:

16 March 2009
Roy is referring to the need to file Form 982.

Woodstock (talk|edits) said:

16 March 2009
Thanks for your input - I will look at Sec. 108 - and IDYM - I am having trouble getting information from this client - no 1099-C, no cooperation whatsoever. I am trying to pick apart the situation - as a matter of fact, he just gave us the income/expense for the condo and there was no income for 2008 - it wasn't rented. And with preparer penalties on the rise, I am just attempting to cover all bases!

Ciaaa (talk|edits) said:

16 March 2009
I am dealing with a very similar situation, with the exception of the bk. Bottom line, my client ended up with a little bit of capital gain on the property because it was used for business in the year of the foreclosure.

All I can say is I hope to heck I'm getting a clear view on this thing because I have approximately 25 to 30 foreclosures and/or short sales to deal with and the season isn't over yet!

Any advice on this topic will be accepted graciously.

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