I am in California so want a California expert to answer do not answer if not a California tax
expert. You will not get paid unless you are practicing in California.
Background: I bought a home in 2006 for $285,000, I lived in the home for 3 months, bought another home and moved into it, and then started renting this house and later did a Purchase-contract on it and then this year took it back with a $20,000 buy-out/cancellation payment from the buyer.
RESTATED: I paid 285,000 for the SFH property, I sold it for $280,001 later (2007-2010) on a purchase-contract. This year I took it back with a one time payment for $20,000 as a cancellation payment as of 12/28/2010. I continued the rental contract with the tenants this year starting Jan 1,2010. I brought it back (the property) into my taxes return at a basis of $260,000 (280,000 – 20,000/cancellation payment) and have started deprecating it this year. The house is worth about $170,000 to $190,000 I owe the bank $210,000, lost all my investment except the $20,000/cancellation payment. My plan in 2012 is to let the bank foreclose on the house, it is underwater by $20,000-30,000 and move on.
Question 1: I will have a huge business loss of about $50,000 ($260,000new basis-$210,000MyLoan+recaptured depreciation). Is this right? The property has been a business venture for 5 years.
Question 2: If the bank gets $190,000 there will be a $30,000(-+) loan deficiency which the bank will to eat (purchase-money loan) and give me a 1099-c for the deficiency. Can I offset this fathom income $30,000(-+) 1099-c income with my loss.