I "carriedback" a 2nd mortgage (installment sale) on the sale of a rental property a few years back. I received some cash at the time of sale and the new owners assumed the existing 1st mortgage. The 2nd mortgage was structured with interest accruing for 3 yrs, with payments beginning in the 4th year.

Unfortunately, the owners filed bankruptcy. The 1st mortgage holder received the property in court and the judge discharged the 2nd mortgage due to me.

Can I claim a loss for this and if so, how?

Thanks in advance.

Hman