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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
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Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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The capital gain on the first property would be closer to $300K.

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The capital gain on the first property would be closer to $300K. The amount transferred was less as we had taken out equity earlier. Based on your answer, the basis for the new property would be 560-300=260K. If we "sell" at fair market value as result of a short sale or foreclosure, the capital gain would be 100K. Our current mortgage is around 400K. We have passive losses of around 100K. That would balance the paper capital gain, I infer. Not sure of what the significance of the difference between the mortgage balance and the sale price of 40K. Loan is non-recourse in Arizona so the lender cannot come at us for this balance. Overall, I conclude that any tax liability would be small if any. Do you confirm this general line of reasoning?
Submitted: 1 year ago.
Category: Tax
Expert:  taxmanrog replied 1 year ago.

Welcome to Just Answers! Thank you for giving me the opportunity to assist you! I will do my best to help!

 

Let me see if I have the fact pattern down. You have a property with a $260k basis, with a FMV of $300k, and a mortgage on it of $400k. The property is going to be short-sold for the $300k FMV. In addition you have $100k of suspended passive losses that will be triggered when you sell the property.

 

Is that an accurate summation? If so, you will have a sale for $300k less your basis of $260k, for a net gain of $40k, plus $100k of mortgage cancellation, so total gain of $140k, less the suspended passive losses of $100k, leaves you with taxable income of $40k.

 

I hope this answers your question! If you have any more, or if this is not clear, please feel free to ask! If my answer has helped you, please remember to rate me highly! I would appreciate it!

 

Thanks again! Have a great weekend!

 

Roger

taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 392
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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