Negative equity, can’t deduct, taxed if I foreclose. HELP!?

Deal Score0

My wife and I have a condo we rent at a loss of $ 700/mo. We own a different primary residence as well. While doing taxes this year, we discovered our AGI is over $ 150k and we were unable to deduct ANY of our rental expenses including our $ 700/mo loss throughout the year. We are approximately $ 85,000 in negative equity on the condo.

We are considering foreclosure on the condo. I discovered the wonderful 1099-C tax implications if we were to do that. It’s not our primary residence and I do not believe we can prove insolvency.

We don’t expect the property to appreciate and surpass our liability anytime soon. The condo loan is interest only and we pay about $ 1750/mo in mortgage interest each month.

Is it better to foreclose and pay taxes on the $ 85k in canceled debt? Do we have any other options so we don’t get trashed in taxes next year?

1 Comment
  1. Reply
    the tax lady
    May 15, 2011 at 1:37 am

    The loss on the rental is rolled forward to future years on form 8582. You will eventually get to take the loss when you sell/foreclose.

    As for the foreclosure, you will deduct the loss that occurred while you owned the property–that will show up on your 1040 on line 14. The pent-up passive loss will show up on line 17. The 1099-C will *also* show up on line 17. The losses will counteract the 1099-C (except for depreciation).

    Thus the income issue is whether or not you had any loss in value before you started renting the condo (non-deductible if you used it for personal use) and any depreciation you have been able to claim to date.

    Leave a reply

    Register New Account
    Reset Password