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The IRS will only consider personal property foreclsoures to avoid tax, not investment property, and if the mortgage company sues you they can not call your employer.
I would try to make the rental property seem as if it is personal by filing taxes with the address and changing the address of your license into it, if you have time prior to the foreclosure.
I cannot file taxes with the new address because I bought a short-sale property and must live in it 1 year per FHA requirment (from what I understand). The reading I have done has stated that if I short sale my rental... I will be taxed. But if I foreclose... I will not be taxed. Also, Arizona does not allow for deficiancy judgements on homes that are less than 2.5 acres.
From my research in AZ their is new law that states investors who do not live in the home for 6 months, will not be protected. Also, foreclosure IRS relief applies only to principal residences, that is, the home you live in. If a lender forgives debt after a foreclosure, short sale or loan restructuring for a vacation home or investment property, for example, the old rule still applies: The amount of debt cancelled is considered taxable income to you.
On July 10th, the Arizona State Senate passed SB 1271, which takes effect on September 30th, 2009
If "utilized for either a single one-family or a single two-family dwelling by the trustor" is interpreted to mean that the trustor must have lived in the home for at least six consecutive months, then owners of "investment" properties that they themselves have never occupied, will no longer be protected by the anti-deficiency statute* if the property is sold via trustee sale (foreclosure).http://www.azlifestyleteam.com/blogs/christie_thompson/archive/2009/07/20/sb-1271-serious-changes-to-arizona-s-anti-deficiency-statute.aspx
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