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Now, for the house in Florida.

1. On February 22, 2013, I received my house back after obtaining a Deed in Lieu of Foreclosure. I advised the resident at that time, she could stay there until July, rent free. However, if she wanted to stay longer, she would have to pay rent. I did receive $200.00 from her, but no more. In August of 2012, I had an attorney file eviction proceedings, and I received the house back in November, 2012. Upon receiving the house back, we discovered that the tenant had trashed the house....FULL of roaches and fleas and just generally trashed, with refuse all over the house. I had to get an exterminating company to come in twice to spray, bomb and apply gel for the roaches and fleas. I had a hauling company go in and remove the refuse. After the house was cleared, I went down at the end of November, with a friend who is a contractor, and we stared work. I was fully planning to rent the house again for income during my old age. In December, 2012, I had the roof replaced.

2. In January, 2013, my friend and I went back down and completed the rehab of the house. At that time, I approached a real estate company about (1) Selling or (2) using them as a rental agent. They advised me to place it on the market for sale first, and if that did not work, they would be happy to be my rental agent. During that time (2013) we completed the rehab of the house and I placed it on the market for sale, after obtaining an appraisal.

3. The house has now sold for less than the appraised and currently assessed value (cash sale), and it will close around the middle of June. As a note, the assessed value increased for 2013 due to the new roof.

How will I treat this house for 2012 and 2013 for tax purposes?

Donna (who will be happy to supply more info if needed)
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3. The house has now sold for less than the appraised and currently assessed value (cash sale), and it will close around the middle of June. As a note, the assessed value increased for 2013 due to the new roof.

The assessed value is irrelavent to your taxes. You need to determine your cost basis. Others who are much wiser will need to comment on which expenses added to your cost basis.
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Let's start by checking these dates:

On February 22, 2013, I received my house back ...
In August of 2012, I had an attorney file eviction proceedings ...
I received the house back in November, 2012


I suspect one of them has a wrong year.

Next, how about some back story? How did you get to the point where you needed to obtain a Deed in Lieu of Foreclosure?

You're going to need to determine your current basis in the property. My guess is that's going to involve dealing with the Deed in Lieu and what happened in years before 2012. You'll start by determining your basis immediately after receiving the Deed in Lieu.

Since you never really held the house out for rent, I'm pretty sure most (or perhaps all) of your repair expenses will add to the basis in your property. Add those repairs to the basis immediately after the Deed in Lieu, and you'll have your basis to figure the gain or loss on your upcoming sale.

--Peter
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OK, here we go. Thanks for spotting the incorrect year. I received the house back in February 2012.

I sold the house in 2007, taking back a mortgage (SP $82K, Mtg $77K, the new owners were to have replaced the roof, but did not). They stopped paying the mortgage in May, 2011, except for a partial payment in June of that year. In November, 2011, I hired an attorney and we were able to obtain a Deed in Lieu of Foreclosure (had a title check first), rather than institute foreclosure proceedings, which is a very expensive venture in the State of FL. The Deed in Lieu was recorded in February, 2012.

The basis as of February 24, 2012, is $48,838.00 (house lost 1/2 value) in the interim years. The real estate company appraised the house in January, 2013 for $60K.

I was planning to continue to rent the house; however, she never came through except for the $200.00. Then when I went down there in November, 2012, I was still planning to rent out the house. It was not until January, 2013, that I changed my mind and decided to place it on the market. The house was a great rental house from 1996 until 2007, and still is. In fact, the new owner will be renting it out (good neighborhood, 1 block from top high school in the county). My contractor is now separating the rehab costs by year. The roof was replaced in 2012.

What to do?

Thank you all so much for your help. I prepare my taxes using Tax Act, and this year (for the year 2012) will be a you know what.

Donna
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I received the house back in February 2012.

OK. That makes more sense.

I sold the house in 2007, taking back a mortgage (SP $82K, Mtg $77K ...). They stopped paying the mortgage in May, 2011. The Deed in Lieu was recorded in February, 2012.

The basis as of February 24, 2012, is $48,838.00


You say that is the basis, but it's probably not. If that figure is the unpaid principal on the loan or, I can guarantee you that is its NOT the basis in the property.

To calculate the basis after your repossession, you will need to look at your original basis when sold, the payments received to date, the gain recognized to date (assuming you are reporting the sale on the installment basis), and probably a couple of other things I'm forgetting.

The real estate company appraised the house in January, 2013 for $60K.

That is irrelevant.

I prepare my taxes using Tax Act, and this year (for the year 2012) will be a you know what.

This is a year when you may want to consider getting a professional - a really GOOD professional - to do your return. I've done one repossession of property in my career, so I'm far from expert. On the other hand, I know (more or less) what I'm doing, have access to plenty of professional tools, and knew about what the answer should be going into that one return. And it still took me many hours to get that one repossession done. (Way more time than I could bill for, unfortunately. But the client let me file an extension, so I wasn't putting off other returns to get that one done.)

--Peter
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The basis I used is the County appraisal for assessment purposes. I received a copy of that. Of course, I was aware of the drastically fallen home values in FL and would never use the unpaid principal balance of the mortgage as the basis.

I am seriously considering having my corporate CPA prepare my personal taxes for 2012 (he prepares corporate and personal). He is a personal friend, and I hate to cast this upon him, but he has been in the business for a long time, and I trust him explicitly. As a note, he used to work for one of the big 5 accounting firms in the country. Fortunately, his firm was not involved in all the brouhaha during the Enron years.

What a pain in the rear.

Donna
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A hopefully not to stupid of a question.

A loss on a personal residence is not deductible. In this case, the loss is in the value of the loan. The loan was "settled" with property that had lost value. Is the loss a deductible loss?
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The basis I used is the County appraisal for assessment purposes.

That is not your basis. The appraisal - either by the county or by an independent appraiser - is irrelevant in this situation.

I am seriously considering having my corporate CPA prepare my personal taxes for 2012

I would highly recommend that. Very highly.

--Peter
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A loss on a personal residence is not deductible.

Correct. But irrelevant to Donna. The property was a rental property, not her residence. And even if it had been a personal residence, it's still irrelevant, as the loss was on a secured loan, not on the residence.

In this case, the loss is in the value of the loan. The loan was "settled" with property that had lost value. Is the loss a deductible loss?

There will be no loss on the repossession. Any loss will end up affecting the basis of the repossessed property. There is the possibility of a gain on the repossession. (Probably not in Donna's case, but in general a gain on repossession is immediately taxable.)

Any loss would be recognized when the repossessed property is sold.

Ultimately, you follow the actual dollars. Beginning with the purchase of the property, dollars in minus dollars out gives you the gain or loss over the entire transaction. Some will be rental income or loss, some will be capital gain or loss, and some will be interest income. But it will all work out in the end. (That's the basis of my earlier statement that I knew the answer, I just had to be sure I got there correctly.)

--Peter

PS - In case anyone is actually trying to research this issue, the buzzword for your research is "repossess" not "foreclose". The literature generally refers to this as repossession of property, as it applies equally to loans secured by real estate and personal property.
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