Foreclosure when Personal Mortgage and S corp title

4 Replies

I am hoping a tax pro can help with the proper reporting of this foreclosure scenario.

I purchased a duplex and owner occ in 2005 and held title as a single man.

In 2010 I quit claimed title in to an LLC, The loan remained my personal obligation.

2005 purchase and owner occ duplex

2008 duplex becomes full rental

2010 quit claim title in to an LLC

2013 foreclosure on duplex. At the time of foreclosure, title was help by my LLC (taxed as an S corp) and I was personally responsible for the note.

Currently, I have disposed the property from the business on the s corp tax return. The S corp now shows a $170k loss which carries over to my personal return via K1. Is this correct?

I look forward to feedback.

@Steven Hamilton II Can answer. You're going to have some forgiven debt income, assuming the bank forgives it, as opposes to pursuing you for it. This combines with the capital gains loss, depreciation recapture, etc. in some magical way.

I'm sure Steven's quite busy this time of year, but perhaps he can answer.

You can only use $3000 per year of losses to offset other income. If you truly have $170K in losses, you'll have a $3000 deduction each year for the next 57 years.

You do have a big tax bill for the forgiven debt, though. That forgiven debt is considered income. That could have been avoided had it still been your residence, but I don't think there's any way to avoid it for an investment, other that the insolvency approach.

Originally posted by @Bryan Sowieja :
I am hoping a tax pro can help with the proper reporting of this foreclosure scenario.

I purchased a duplex and owner occ in 2005 and held title as a single man.

In 2010 I quit claimed title in to an LLC, The loan remained my personal obligation.

2005 purchase and owner occ duplex

2008 duplex becomes full rental

2010 quit claim title in to an LLC

2013 foreclosure on duplex. At the time of foreclosure, title was help by my LLC (taxed as an S corp) and I was personally responsible for the note.

Currently, I have disposed the property from the business on the s corp tax return. The S corp now shows a $170k loss which carries over to my personal return via K1. Is this correct?

I look forward to feedback.

Thanks for the tag, it is a capital loss not an ordinary loss. Bryan, You really shouldn't be trying to do a corp return yourself. There are MANY rules involved. You also never should have had the real estate held by an S-corp. (bad idea). The Corp assumed your loan.

Did you receive a 1099-A or 1099-C?

Actually your losses max at 3k negative per year. You can deduct enough to offset any gain and THEN take 3k as a loss.

Thank you Steven!. I received 1099-A.

In addition to updating my figures, I now see the mistake made and included form 4797, Sales of Business Property with the return. Form 4797 now shows -$48k on line 7. This feels much more reasonable

After updating my return, I now show -$2500 on line 2 and -$48k on line 9 of the schedule K. 1120S.

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