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Discussion:Bankruptcy Relief - Rental House

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Discussion Forum Index --> Tax Questions --> Bankruptcy Relief - Rental House

Marrin (talk|edits) said:

11 February 2006
If a client has a rental house with an original cost basis of $200,000 (not including $20,000 of prior depreciation) that is forclosed on . . . and then later files bankruptcy under Chapter 7 which relieves them of a $250,000 mortgage on that rental house, what would their basis be for taxable gain? I'm thinking $70,000. Correct? Or are there other considerations?

Riley2 (talk|edits) said:

11 February 2006
The foreclosure sale itself represents a sale that should be reported on Form 4797. The foreclosure sale amount less expenses minus basis would determine the gain.

The Chapter 7 discharge of the personal liability for the mortgage deficiency (if any) would be non-taxable since it is a Title 11 case.

Marrin (talk|edits) said:

12 February 2006
Thanks for the confirmation. That's where I was headed in my calculations.

Taxestaxes (talk|edits) said:

15 February 2008
To expand a little on the above, I have a client who has an LLC rental and filed bankruptcy on this; he let everything go back to the bank; he hasnt received anything (such as a 1099-c) from the banks; wouldnt the mortgage balance that was forgiven be considered the sale amount when calculating the 4797?

Taxestaxes (talk|edits) said:

16 February 2008
any thoughts?

Kevinh5 (talk|edits) said:

16 February 2008
how do you know that it was forgiven yet?

Taxestaxes (talk|edits) said:

16 February 2008
good point, but they have their bankruptcy discharge papers, etc. And from them they havent made any payments on loan since Nov. 07; and they signed over property(deeds) etc and they said that the bank has already sold them to someone else? My first thought was too that they might received the statement for 08; but they are wanting this to be the final return since they dissolved the LLC.

Kevinh5 (talk|edits) said:

16 February 2008
ok, then how will you determine the amount owed?

Taxestaxes (talk|edits) said:

16 February 2008
amt owed? I am assuming you mean balance on loan at the bank? He has statement from the bank, just something they printed showing the balance on the mortgage loan when he filed bankruptcy.

Taxestaxes (talk|edits) said:

19 February 2008
Just talked to gentlemen and did learn that bankruptcy was not final till Jan 08. However, upon lawyer's advice, they dissolved the rental LLC in Nov 07. Does anyone have any suggestions on how to handle....Since llc is dissolved, they wanted this to be last return; however, technically they wont get 1099-c till next year; I know that the foreclosure amt is to be reported on 4797; I just have not had this where LLC is disolved and return still needs to be done? Hope someone can advise or steer in right direction....thanks.

Taxestaxes (talk|edits) said:

21 February 2008
Can anyone respond to above?

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