Foreclosure on Rental Property - Tax Implications?

[J Armstr]

Hi, I filed BK 7 in June 05 and was discharged Oct 05. Included in my BK was a rental home in a different state.

I am going through my TurboTax just fine, except when they asked me how much I sold my rental home for in 2005 when I disposed of it. Well, I didn't sell it for anything, I gave it back to the bank. Does anyone know what value should go in there? Would it be zero? Putting zero shows me at a loss close to $12K.

[bkfiler]

no idea. call a accountant for that answer to be sure.

when you do a bk the tax benefits may not be yours to take. its not asubject talked about much but the trustee takes your estate and keeps the carry forward losses as i understand it so far. so you loose the ability to write those losses against any gains for the year(s) as well.

[messedupbad]

If you find out the answer please pass along to me. We had a rental that we had to chip money in each month because payment was higher than current market rent. Filed Chapter 7 In Oct and let the house go into foreclosure also. So it seems we are in the same boat I also want to do Turbo Tax but am worried about this. I have to give any refund over to Trustee but Just tring to figure out how to set this up as a loss. Because rent did not equal house payment so I lost money each month I had it in 2005. So if you get the answer please pass it back to me and I will do the same.

[JimH]

You didn't sell it - it is part of the bk estate so there is no taxes owed. Somewhere in turbo tax there should be an option for this. Check their FAQ section or email them a question.

As far as when you actually no longer own the property is a more complicated question - you no longer own it when it is transfered to the bk estate. Your atty should be able to tell you what date that is. Maybe someone else on here knows when - at discharge? at closing? I don't know the answer to that. You still use schedule E (supplemental income and loss) for your part year ownership income and losses from the property.

Here is the IRS bk guide - it answers many questions.

http://www.irs.gov/pub/irs-pdf/p908.pdf

[bkfiler]

well, i wouldnt use this answer to fill out turbo tax. but, the estate becomes property of the trustee the minute you file the bk petition.

[J Armstr]

Here's what I found out so far...you don't list the rental as sold or disposed of for 2005. In 2006, you just don't have a rental property anymore.

I considered myself the owner of the house until 6/2005 when I filed for BK. So we are only taking credit for mortgage interest until then. I talked briefly with my lawyer and she agreed that that was the best approach.