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In 2006, my wife and I sold a piece of undeveloped land for $92,000 which we carried the paper on. Our cost basis in the property is (was?) $62,000.
The buyer currently owes a balance of $59,000 at 7.5%.
The FMV of the property, if patient, is possibly in the $40,000 range in today's market.
The buyer is one of the people laid off in the current MSFT reorganization. He feels he cannot guarantee being able to make his $700/mo plus $5,000/yr payments on this property.
He has made us an offer of a one time $30,000 cash out with us to forgive the balance of the debt ($29,000).
We are considering this, as we would still be whole on our cost, plus we would have earned $14,000 in interest over the last few years. Additionally, since the sale, the local government has imposed a $5,000 assessment on the property which is still outstanding and the current year's property taxes have not been paid.
What are the tax implications? Specifically, can we take that $29,000 of forgiveness as a bad debt write off and if so, how.
This piece of property was simply an individual investment, and not part of a "business" for us.
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