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lynettasmith3
New Member

IF A RENTAL PROPERTY GETS FORECLOSED AND YOU OWED INSURANCE AS PART OF THE DEBT, IS THAT AN EXPENSE?

 
2 Replies
RayW7
Expert Alumni

IF A RENTAL PROPERTY GETS FORECLOSED AND YOU OWED INSURANCE AS PART OF THE DEBT, IS THAT AN EXPENSE?

If you did not pay the insurance it would not be an expense.

 

The IRS may count a debt written off or settled by your creditor as taxable income.

 

 Because you no longer have to pay the full amount of the debt, the IRS treats the forgiven amount as gained income, for which you should pay income taxes. (That additional income might also affect your state taxes.)

 

-follow these link(s) for more information-

Guide to Debt Cancellation and Your Taxes - TurboTax Tax ...

Video: Debt Cancellation and Your Taxes ... - TurboTax

Carl
Level 15

IF A RENTAL PROPERTY GETS FORECLOSED AND YOU OWED INSURANCE AS PART OF THE DEBT, IS THAT AN EXPENSE?

With rental property, when it's foreclosed on by the lender, the amount of the loan you have not paid as of the date of the foreclosure, is taxable income to you. However, it may OR MAY NOT be reportable in the tax year of the foreclosure. You need to WAIT until the lender sends you a 1099-C Forgiveness of Debt form.

 

Generally on foreclosed property, once the bank/lender has it, they will auction it off to the highest bidder. The price they get at auction is applied to the balance of the debt yo owe. If it doesn't pay of the debt entirely, then the remaining debt will be taxable income to to you. So it's not at all uncommon for you not to get the 1099-C for 2 years or more after the foreclosure.

Sometimes the 1099-C you receive will be for a prior tax year, which means you'll need to amend that prior tax year tax return to add the forgiven debt to it. I've only seen this happen rarely though.

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