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it appears that you are making some legal point with regard to my question. what is the significance of that. To me, it is mute, but to you it appears to be very important.
did you mean that I would not have to pay capital gains tax for the specific amount of the forgiven debt, or for any amount based upon the difference between the adjusted sales price and the adjusted basis?
I put a pretty high price on the question because I know it is complex. i can pay a bit more,but in my initial question I had asked about the tax implications of three scenarios. When you decided to take on the question as asked with the amount placed on the question, my hope was that I would get a comprehensive answer to the three scenarios.
when the trustee abandons the property and closes his file, then do not i still own the property, especially if I do a work out with the bank and keep paying on the debt?
in one of my three scenarios, i work out a deal with the mortgage company. in that scenario I end up continuing to own the properties. then at some point in the future, i sell the properties. in this scenario, i assume that I would indeed have to pay capital gains tax as well as recapture of depreciation.
my tax liability for the different scenarios will make a big difference as i decide whether to let them foreclose, do a short sale or do a loan modification/principal reduction with the bank and then continue to own the properties.
Unless you tell me differently, then from your answer it does not matter how long I continue to collect rents, manage the property and whether or not i work out a loan mod with the bank. i will owe no taxes on the disposition of the property if/when i sell it for a gain in the future. this does not make sense to me,but i sure like the concept.
normally, i am sure that most people would just let the property go into foreclosure, but iif I can work a deal with the bank, then i think i should. just wanted to know the tax implications of doing that.
When an individual debtor files bankruptcy under Chapter 7, a new taxable entity is created that is separate and distinct from the debtor. All property owned by the debtor at the time the bankruptcy case is initiated passes by operation of the Bankruptcy Code to the bankruptcy estate and the transfer is not treated as a taxable disposition. Thus, the transfer does not require income tax to be paid on the gain in the assets involved. Nor does the transfer trigger income tax liability from the recapture of depreciation.
I understand this answer. Please confirm whether it makes a difference if i keep paying on the property, do a work out with the bank and then sell it years later. I would assume that it does matter. My tax obligation will affect what deal I would be willing to work out with the bank,and I want to pay the taxes due and not do something that will get me in trouble with the IRS. Once you get back to me, then I pay and accept with good feedback. Thank you very much.
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