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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
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Experience:  Over 20 Years experience
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As a Lender what are the tax implications if I accept a Deed

Customer Question

As a Lender what are the tax implications if I accept a Deed in Lieu Forclouse agrrement
Submitted: 4 years ago.
Category: Tax
Expert:  R. Klein, EA replied 4 years ago.

Randalltax :

You have two transactions you will need to deal with. First is the ending of the original transaction. You did not indicate if this was an installment sale transaction or just a note, and they have slightly different tax treatments.

Randalltax :

The second transaction is that you now have acquired a property with a cost basis equal to the debt forgiven in exchange.

Randalltax :

Do not confuse this acquisition of the property as a "re-acquisition" of an old property, but it starts the ownership process all over again. If you sell this property, then you recompute the capital gain or loss based on the cost basis from the acceptance of the deed.

Customer:

This was an installment transaction, with no down payment, basically I carry 100 % of the price as a note

Customer:

and it has been less than a year since the first transaction, so the capital payment is minimun, is there a tax for accept the DIL?

Customer:

hi this was an installment transaction was is the tax treatment for that?

Randalltax :

You have to close out the installment contract based on the fact that you have received a final payment. You only pay tax on the profit of the money you actually received.

Randalltax :

You got the value of the house back as the final payment. It may be less than what it was worth, but if you accept the house in exchange for the remainder of the note balance, then that is the final payment.

Customer:

thank you

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