When you are doing the deed in leiu there is no sale involved, so the bank does not assume a loss until they try to sell it themselves as an REO. From what I understand, they cant get you for that loss because they forgave you of the debt. I beleive that you are safe, but you really need to see a CPA or Tax Attorney. For reals man
9th June, 2009
I owe 110K house would probably appraise for 95 or so.
What did you pay for the property? Was the house your primary residence or a rental? If primary residence, how long did you own and occupy? Did you make any capital improvements while you owned the property and how much were they?
14th June, 2009
House was a rental, just recently putting paint and carpet in. Have owned the house for about 3 years
Maybe, but without more details noone can give you a definite answer.
Your own tax advisor who has detailed knowledge of your solvency/insolvency posture, the loan details, the cost basis for your property, the FMV of the property, and your use of the property will be in a position to give you specific details.
In most cases "no".. As long as you can show that your assets were less than your liabilities.. You should talk to a good CPA or accountant from your area for state tax ramifications.
[addsig]
Since your short sale is for investment rental property, and you took a depreciation expense, it is likely that your cost basis is less than the FMV of the property.
If the property is sold for the FMV or less, the difference between your adjusted cost basis and the sale price is a capital gain. The portion of your gain attributed to depreciation is recaptured ar 25% and the balance is a long term capital gain.
If the FMV of the property (the short sale price) is less than your loan balance, then the amount of the forgiven debt that exceeds FMV is taxable as ordinary income at your marginal tax bracket rate.
In the event you are insolvent, you may be able to exclude the forgiven debt from your taxable income but only to the extent of your insolvency.
You may have the same tax liabilities on your state tax return.
In addition, I understand that CA tracks sales of out of state 1031 property when the relinquished property was in CA. The state will also want to capture the capital gain that would be due if the replacement property you sold in a taxable event had been located in CA.
Before you commit to a short sale. you may want to discuss all these topics with your tax advisor so that you are fully aware of the federal and state tax consequences.
There is not enough information here to give you a definite answer. On the surface, it appears that you COULD have a taxable capital gain and taxable forgiven debt. It has to be computed for each property..
You really need to take all this to your own tax advisor to work out the specific details.
When you are doing the deed in leiu there is no sale involved, so the bank does not assume a loss until they try to sell it themselves as an REO. From what I understand, they cant get you for that loss because they forgave you of the debt. I beleive that you are safe, but you really need to see a CPA or Tax Attorney. For reals man
I owe 110K house would probably appraise for 95 or so.
What did you pay for the property? Was the house your primary residence or a rental? If primary residence, how long did you own and occupy? Did you make any capital improvements while you owned the property and how much were they?
House was a rental, just recently putting paint and carpet in. Have owned the house for about 3 years
Maybe, but without more details noone can give you a definite answer.
Your own tax advisor who has detailed knowledge of your solvency/insolvency posture, the loan details, the cost basis for your property, the FMV of the property, and your use of the property will be in a position to give you specific details.
In most cases "no".. As long as you can show that your assets were less than your liabilities.. You should talk to a good CPA or accountant from your area for state tax ramifications.
[addsig]
You have several income tax consequences in play.
Since your short sale is for investment rental property, and you took a depreciation expense, it is likely that your cost basis is less than the FMV of the property.
If the property is sold for the FMV or less, the difference between your adjusted cost basis and the sale price is a capital gain. The portion of your gain attributed to depreciation is recaptured ar 25% and the balance is a long term capital gain.
If the FMV of the property (the short sale price) is less than your loan balance, then the amount of the forgiven debt that exceeds FMV is taxable as ordinary income at your marginal tax bracket rate.
In the event you are insolvent, you may be able to exclude the forgiven debt from your taxable income but only to the extent of your insolvency.
You may have the same tax liabilities on your state tax return.
In addition, I understand that CA tracks sales of out of state 1031 property when the relinquished property was in CA. The state will also want to capture the capital gain that would be due if the replacement property you sold in a taxable event had been located in CA.
Before you commit to a short sale. you may want to discuss all these topics with your tax advisor so that you are fully aware of the federal and state tax consequences.
There is not enough information here to give you a definite answer. On the surface, it appears that you COULD have a taxable capital gain and taxable forgiven debt. It has to be computed for each property..
You really need to take all this to your own tax advisor to work out the specific details.