DEFAULTING ON PERSONAL ANNUITY LOAN

2 Replies

Hey guys! My husband and I took out a loan from is annuity. The interest rate/payment is high. We know there will be a tax penalty if we decide to default on the loan and claim it as income. We are also in the process of doing a BRRR project on a mixed portfolio deal. We have a lot of expenses this year and we are not doing the REFI until 2019. At this time, the rentals do not cash flow (as they are vacant and being renovated). So basically we are going to be at a loss for the 2018 tax year. Will all of my renovation expenses ($80,000 by the EOY), plus the negative cash flow wash out the $35,000 annuity income when it comes tax time? I just don't want to find myself with a crazy tax bill. Thanks for any help!

Originally posted by @Lauryn Meadows :

Hey guys! My husband and I took out a loan from is annuity. The interest rate/payment is high. We know there will be a tax penalty if we decide to default on the loan and claim it as income. We are also in the process of doing a BRRR project on a mixed portfolio deal. We have a lot of expenses this year and we are not doing the REFI until 2019. At this time, the rentals do not cash flow (as they are vacant and being renovated). So basically we are going to be at a loss for the 2018 tax year. Will all of my renovation expenses ($80,000 by the EOY), plus the negative cash flow wash out the $35,000 annuity income when it comes tax time? I just don't want to find myself with a crazy tax bill. Thanks for any help!

 The majority of the renovation cost cannot be expensed in 2018 because you have not rented the place yet. Once you rent, the expense of renting it out can be expensed.  They are rather added to the basis of the property that you are renovating. 

Thus, it cannot offset your income. Some of the annuities have a provision that if you can repay within few months of default or before next year tax deadline, it will not be income to you. You might want to talk to your annuity provider. 

Ashish, I shouldn’t say they aren’t rented. Half are rented and we are going through the eviction process and renovating each unit as they become empty. We bought these 8 units with tenants already in them. Does this change the ability to use these renovations as a tax expense for 2018?