I am a Real Estate Broker with a property management company that qualifies & files our returns under the safe harbor election. We purchased a small multi-family property in our company name & sold it on the same day for a profit. We owner financed part of the amount of the sales price & the buyers signed a Promissory Note, which required them to make interest only payments with a balloon in 23 months. They only made 3 payments, so now they owe the interest payments + the principal amount. We have been unable to foreclose because the buyers used a hard money lender to purchase the property & the hard money lender took first position on the loan docs, which were filed of record. The buyers also stopped paying the hard money lender & they foreclosed on the property. We are left with a pretty sizable bad debt that will never be collectable. The title co sent a 1099-S with the gross sales price listed on it. I have to show that gross amount as income (income that is a lot higher than what we actually received) & we need to be able to offset some of that amount by showing that we have a true bad debt because the buyers defaulted. Where do I go to enter the bad debt amount?
Thank you!
