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Your proceeds will be the loan payoff from the foreclosure PLUS the "excess funds" received. That amount, compared to your adjusted basis (after depreciation) will be your gain/loss.

And you report the gain/loss on Form 4797, and from there the net capital gain flows to Schedule D. But if it's a net loss, it's ordinary. And gain on any personal property involved will also be ordinary. Any gain on personal property is recaptured as ordinary to the extent of depreciation taken.

I think I've got it now! THANKS!

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