Posted on: 22nd Mar, 2010 02:03 pm
Hi,
I am trying to short sell my property for about 160k less than the original value of the loan. If the short sale is complete, i will receive a 1099 and California may tax me on the cancellation of debt (160k). I have already rented out my property for 6 months. A CPA told me that if i rent out for another 6 months, the property becomes rental (vs owner occupied) and the loss/gain will offset and i will not have to pay taxes the following year. Is this true?
I am trying to short sell my property for about 160k less than the original value of the loan. If the short sale is complete, i will receive a 1099 and California may tax me on the cancellation of debt (160k). I have already rented out my property for 6 months. A CPA told me that if i rent out for another 6 months, the property becomes rental (vs owner occupied) and the loss/gain will offset and i will not have to pay taxes the following year. Is this true?
Hi joel,
If you sell your income-producing rental property and suffer a loss, you can deduct that loss as ordinary loss as per the IRS code Section 1231. You will have to report the loss on Form 4797. This loss may offset the income from discharge of indebtedness and you may not have to pay any tax. However, things depend a lot on your individual situation and a CPA is the right person to guide you in this regard.
If you sell your income-producing rental property and suffer a loss, you can deduct that loss as ordinary loss as per the IRS code Section 1231. You will have to report the loss on Form 4797. This loss may offset the income from discharge of indebtedness and you may not have to pay any tax. However, things depend a lot on your individual situation and a CPA is the right person to guide you in this regard.