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Hello and thank you for your question.
Your foreclosure is generally treated as a sale for income tax purposes for which gain or loss can be recognized (IRC 1001).
The four-plex was a rental property, correct?
Do you know whether or not your loan was a recourse loan? Recourse loans are ones where you are personally liable for the debt, meaning not only can the bank foreclose, but they can come after you for the difference.
Turbo Tax is only letting me show a "gain" between the loan amount and my adjusted tax basis. But it is not letting me show the loss between the FMV
Yes, the loan was a recourse loan
The amount realized will be the loan amount with a recourse loan in this case because the fair value of the property exceeds the loan amount. You should generally be entitled to the difference between what you owe and what your house is sold for, noting the bank will be eating up equity in the foreclosure process with fees, etc.
Your gain (loss) is equal to the amount realized (loan amount) less your adjusted basis in the property.
Your basis in the property will be your initial cost basis (what you paid originally) less the years' depreciation adjustments (IRC 1012, 1016).
So the loss between the FMV and the loan amount is not considered because it was a recourse loan?
Your gain then will be subject to IRC 1250 recapture and may be taxed at 25% generally (IRC 1).
The loss between the fair market value and the loan amount isn't a loss to you. That is why it isn't considered.
Ok, Thank you