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A business loan for $190,000 (a discharged debt under Chapter

7) was originally thought to...
A business loan for $190,000 (a discharged debt under Chapter 7) was originally thought to have been secured with my rental property. But it later turns out that the Agreement was invalid. Subsequently, the lender and I agreed that I pay the lender $7,500 just to insure that they would remove any property liens or lawsuits. I incurred an additional $8,000 in my legal fees. The original purchase price of the rental unit was $220,000. Depreciation was $25,000. The rental property was sold for $90,000. Does this transaction result in a capital gain or loss for me and in what amount?
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11/12/2013
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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Megan C :

Hello thanks for your question

Megan C :

My name is XXXXX XXXXX I will be happy to help you today

Megan C :

You will have a loss, and it's a section 1231 loss so it will be ordinary not capital. This is good because it will offset your other income :-)

Megan C :

Your basis in the property is $220,000 + $15,500 - $25,000 = $210,500

Megan C :

Your loss is $120,500

Megan C :

There is no depreciation recapture because there is no gain.

Megan C :

Do you have any further questions about this?

Megan C :

If not, please rate positive so that I may receive credit for assisting you today

Megan C
Megan C, Certified Public Accountant (CPA)
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I see we were having trouble with our Live Chat. Please review my response and indicate below if you have any further questions. If no further questions, please rate me positive so that I may receive credit for assisting you today.

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Customer reply replied 4 years ago

Will the $120,500 loss offset my pension income and/or withdrawals from my Traditional IRA? Or will the remaining portion of the loss carry over to 2014, 2015, 2016?

Thank you for your follow up. This is an ordinary loss so it will offset all of your other income. If you still have loss left over you will carry it back 2 years and get a refund and if still some loss is left carry it forward.

Please let me know if you need anything additional.
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Verified
Megan C and 87 other Tax Specialists are ready to help you
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Ask Megan C Your Own Question
Megan C
Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16,581
16,581 Satisfied Customers
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

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