Discussion:Losses on Preconstruction Contracts
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Discussion Forum Index --> Tax Questions --> Losses on Preconstruction Contracts
| 30 June 2007 | |
| I have a client who signed a precontruction contract depositing $120,000 for a $595,000 condo in Florida a couple of years ago. Due to the downturn in the real estate market his hopes of being able to flip this contract have faded away and is faced with either closing on the contract and renting the unit or walking away from the contract and incurring a $120,000 loss. He is set to close in January / February 2008 and would like to know the tax consequence as a result of his business decision.
Here is the question: If he walks away from the contract (due to the fact that he would incur major losses as the rent would only cover 50% of the expenses)and incurs the $120,000 loss, would this be considered an abandonment of business property for tax purposes? Before the downturn in the real estate market, many investors had planned to flip on these preconstruction contracts, and as the projects come to a close I suspect that many investors will begin to walk away and forgo their deposits. As such, this will probably will become common in the next couple of years. Thanks for any help you guys can provide. | |
| 30 June 2007 | |
| Is this a business investment? Is the client in the business of flipping properties? | |
| 30 June 2007 | |
| Yes. This is a business investment. My client's intent was to get in the business of flipping properties. This was his first investment. | |
| 30 June 2007 | |
| I know this exact question was asked within the last month and a SEARCH would yield much wisdom. | |
Actionbsns (talk|edits) said: | 3 July 2007 |
| OOH this looks sooo much like old Ernest is out spending someone's money again!!. I do have another question regarding this, mostly because earlier this year it was discussed quite often. Does anyone know of a CPE class somewhere that deals with the topic of lost ernest money? In all the discussions we had, there was no clear consensus as to deductibility of the loss or where the deduction belonged - on Schedule A or on Schedule D. Seems that there is some ambiguity within what we have read and in the interpretation of the material. A class would be really helpful if there is one. | |
| 3 July 2007 | |
| The class is called "Losing Money In Real Estate (for Complete Idiots)" the book is yellow and black, author is Earnest I. Lostit. | |
Death&Taxes (talk|edits) said: | 3 July 2007 |
| Type "Earnest" in the search block and see the fast elephants dance.
I've counted seven unsold 'spec' houses in my tiny hometown, and all have the same realtor named "Price Reduced." The owners probably read the book Kevin cited. | |
| 3 July 2007 | |
| Personally I found the Earnest threads quite profitable. Leading indicator to the collapse of the subprime market. ♫ | |
