Rental Property bankruptcy

[MJamesB80]

I have 2 properties that I can just break even with each month. I have lost money each of the 4 years I've owned them on repairs and rent not being paid. I have never missed a payment and have been lucky this year so far by having the same rentors pay each month. This will not continue though. And as soon as a big repair is needed or someone moves out I will not be able to continue the mortgage payment without dipping into my own pocket again.

I've tried to sell, but there is no way I can get anywhere near what I owe on them back. This LLC venture has no future as the properties are in the most aweful neighborhood you could imagine.

It seems like I am just delaying the inevitable by waiting to file for bankruptcy. Why not stop paying the mortgage now, collect rent (while I still have both properties occupied) instead of waiting until one of them moves out and then filing for bankruptcy. This way I can at least have about 4 months worth of rent in my pocket to help pay for the bankruptcy costs.

I have very little assets. A car and I rent a house. No credit card balances.

Owe $57,000 (LLC loan)

Monthly payment $541

Rental income $725

Profit $184/month (but this is not much because you have to include repairs and taxes and insurance) Repairs aren't cheap

If I went the foreclosure route then I would owe a lot of taxes from the IRS.
What should I do?

[2muchstress]

so is it true if a home was for investment, you get 1099c from the bank who foreclosed on it?

http://localism.com/article/451424/The-Mortgage-Forgiveness-Debt-Relief-Act

[HHM]

so is it true if a home was for investment, you get 1099c from the bank who foreclosed on it?


http://localism.com/article/451424/T...ebt-Relief-Act

Yes, if the bank decides to forgive the deficiency balance, you will get a 1099-c. Keep in mind, the bank may have the option to pursue you to pay that deficiency (depending on state law). However, most of the time, the bank will write-down the deficiency balance and give you a 1099-c. At which point, you will need IRS Form 982 and read IRS Publication 908 to see if you can get out of paying income tax on some or all of the deficiency amount.

[2muchstress]

bank sold the house... and reported to my credit agency that its still 'open/deragatory' and says i owe them $3,6000. i lived in the house for a month while not paying mortg. (to prepare for short sale; which bank rejected it)....

so i guess... if they do 1099c in 2009 tax, im not sure what % i will pay irs as cancellation of debt.. 30%?

but.. my chapter 7 got discharged.... yet bk court awarded the bank 'relief from stay' so the bank can foreclose without waiting for my discharge.
im not sure if i still owe the bank...?

[HHM]

The forgiven debt just gets factored into your Taxable Income on your 1040, so you will pay whatever percent based on the income bracket that you fall into. There is no special calculation for forgiven debt income like there is for capital gains.

[TX Bluebonnet]

I have 2 properties that I can just break even with each month. I have lost money each of the 4 years I've owned them on repairs and rent not being paid. I have never missed a payment and have been lucky this year so far by having the same rentors pay each month. This will not continue though. And as soon as a big repair is needed or someone moves out I will not be able to continue the mortgage payment without dipping into my own pocket again.

My husband and I have been down this road. We rented a house instead of selling it when we bought another house, and we rented out my mobile home when we got married and I moved into his house. First of all, you are not just breaking even since as you said you're claiming a loss due to repairs and such. I find this way of thinking interesting because this is how my husband rationalized keeping the properties when I was all for selling.. "at least it's paying that mortgage" and "the property will be worth money once it's paid off." You're lucky in that you have good renters. Both of our places got trashed. Who knows what your next renters would be like if you continued.

I've tried to sell, but there is no way I can get anywhere near what I owe on them back. This LLC venture has no future as the properties are in the most aweful neighborhood you could imagine.

We were able to sell the house at an okay price, but just barely covered the mortgage and selling costs. That neighborhood was definitely on the decline. The mobile home is another story. We couldn't sell it for even $10,000 (it's a 14x70, 3 bedroom, 2 bath) when we got it in great shape after we kicked out a bad renter. I guess because of where it was in the mobile home park. Finally we rented it out again, but that renter totally ruined the place and broke the lease without notice. We estimated it would cost at least $2,000 to get it in rentable condition again. At that point we stopped making payments and it got repossed a few months later.

It seems like I am just delaying the inevitable by waiting to file for bankruptcy. Why not stop paying the mortgage now, collect rent (while I still have both properties occupied) instead of waiting until one of them moves out and then filing for bankruptcy. This way I can at least have about 4 months worth of rent in my pocket to help pay for the bankruptcy costs.

It does seem as if you are just delaying the inevitable. If there's no future in the properties and you're losing money every month, why hang on to them? I can't speak as to collecting the rent and not paying the mortgage, but wanted to say don't forget about rental deposits if you have those to give back.

I have very little assets. A car and I rent a house. No credit card balances. Owe $57,000 (LLC loan) Monthly payment $541 Rental income $725

Profit $184/month (but this is not much because you have to include repairs and taxes and insurance) Repairs aren't cheap

If I went the foreclosure route then I would owe a lot of taxes from the IRS.
What should I do?

Again, you are not making a profit so why say that? If you've been depreciating the properties, then yes that will have an impact on your taxes when you sell, foreclose, or bk them. We took a hit on our 2006 taxes when we sold the house, but luckily it just reduced our refund and we didn't have to pay out of pocket. We'll be taking another hit on our 2008 taxes because of the mobile home repo. I'm not sure how our taxes will come out next year.

BUT... even if you do end up owing more taxes, once you pay next years taxes you'll be free and clear from those money pits and I'll bet you'll be so glad that's finally over with.

[TX Bluebonnet]

bank sold the house... and reported to my credit agency that its still 'open/deragatory' and says i owe them $3,6000. i lived in the house for a month while not paying mortg. (to prepare for short sale; which bank rejected it)....

so i guess... if they do 1099c in 2009 tax, im not sure what % i will pay irs as cancellation of debt.. 30%?

but.. my chapter 7 got discharged.... yet bk court awarded the bank 'relief from stay' so the bank can foreclose without waiting for my discharge.
im not sure if i still owe the bank...?

2muchstress, if that creditor was included in your bankruptcy, then no, you do not owe them any money. They should not be issuing you a 1099c. They just need to get it reporting correctly on your credit reports.

[MJamesB80]

IRS Tax Rate Schedule

bank sold the house... and reported to my credit agency that its still 'open/deragatory' and says i owe them $3,6000. i lived in the house for a month while not paying mortg. (to prepare for short sale; which bank rejected it)....

so i guess... if they do 1099c in 2009 tax, im not sure what % i will pay irs as cancellation of debt.. 30%?

but.. my chapter 7 got discharged.... yet bk court awarded the bank 'relief from stay' so the bank can foreclose without waiting for my discharge.
im not sure if i still owe the bank...?

http://www.irs.gov/formspubs/article/0,,id=164272,00.html

Here are the tax rate schedules so you can see what percentage you may owe the IRS depending on what you made.

[JRScott]

MJames can you arrange a short sell? Or possibly increase the rent?

Other than that it seems you may be a good prospect for bankruptcy.

[MJamesB80]

Short Sale

Definitely feel like I could not increase the rent. I feel lucky to have someone in these houses to start with and had to lower the rent to get them in there.

Under a short sale, wouldn't I have to pay the IRS a large amount at the end of the year AND still have to take a hit on the credit score. I just figured if I'm going to take a credit score hit then I may as well do it with no money out of pocket with a bankruptcy.

However, I've posted a question in the Foreclosure section of the forum regarding insolvency and the new Debt Relief Act of 2007.