Loan forgiveness on rental property

[beclampitt]

We purchased a home in Virginia in 2006. Then the housing market crashed. We received 'permanent change of station' orders from the U.S. Military to transfer to a different state. We could not sell the home because it was upside down. So, in 2009, we made it into a rental property. We rented it the whole time. In 2016 our tenants left, and we could not rent the property anymore. So, we did a deed in lieu of foreclosure. Most of the home equity loan was forgiven in 2016, but the bank with the first mortgage did not take the property back until 2017. We did not receive any tax forms from either bank yet. So, is all of this going to be reflected on our 2017 taxes, since that is when the bank finally took the property back? And, will the turbo tax program help walk me through this situation? It looks like the forgiven portion will not be treated as income - because it was on a rental property.

[RichardK · Accepted solution]

Generally you do not report this type of transaction until it is completed, which would be in 2017. You should receive some forms form the bank, and Turbotax will help you report these correctly.