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Foreclosed real estate property with escrow accounts

What is the journal entry for a rental property with escrow accounts and the bank took the money in the escrow as collateral? In other word , how do I calculate the gain or loss for a business rental real estate property with the escrow accounts 

Here are some numbers : 

Building : $200,000

Depreciation : $150,000

Mortgage loan : $ 180,000

Escrow account for Insurance/Property Tax : $20,000  ( Mortgage company took the money in the escrow and they will not reimburse them )

How do you calculate the gain/loss from the foreclosed business rental property 

Thanks ! 

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Foreclosed real estate property with escrow accounts

based on what you provided  the escrow goes away and the mortgage balance is reduce by the $20K to $160K

 

what we don't know is the FMV of the property  and that affects the proper recording

 

say it's  FMV is more that the adjusted mortgage balance of $160K

 

the sale s price                                                         $160K

cost                                                      $200K

accum depr                                          150K               50K 

 

gain  subject to section 1250 recapture              $110K

 

 

fmv less         say 110K                                            $110K

Net value same as above                                          50K

gain subject to section1250 recapture               $ 60K

and ordinary income from debt forgiven           $ 50K normally the bank will send you a 1099C for the debt forgiven if any

 

View solution in original post

6 Replies

Foreclosed real estate property with escrow accounts

Are you using TurboTax Business? Do you need to prepare a balance sheet?

 

More details are needed, such as the amount that was actually received (if any).

Foreclosed real estate property with escrow accounts

I dont need to prepare a balance sheet , I want to figure the gain or loss on the foreclosed property . No amount received as the property went into foreclosure and the bank took possession of the building including the money for property tax/insurance held in the escrow account .

do you account for the escrow money that the bank took as part of the property or you deduct it from the mortgage loan balance or expense it ? 

I believe the journal entry should be as follow: 

Debit :

Mortgage loan   $ 180,000

Depreciation :     $ 150,000

 

Credit : 

Building :             $ 200,000

Escrow                  $ 20,000

Gain                       $ 110,000

 

Is that correct? 

Thank you !!!!!!!!

Foreclosed real estate property with escrow accounts

I'm going to ask @Rick19744 and @Mike9241 to take a look at this.

Foreclosed real estate property with escrow accounts

Too many missing facts and really not a question for a forum such as this.

I don't believe the escrow accounts are a factor.  These are just held to pay taxes and insurance and don't come into play for the gain or loss on foreclosure.  When the escrow $$ were received, you debited cash and credited the escrow.  Now you just need to reverse that entry since the cash was taken and you no longer have that liability to pay the expense related to the escrow.

For the gain on foreclosure, I will link an article that should help you determine this amount as it depends on whether the debt was recourse or nonrecourse.

https://www.thetaxadviser.com/issues/2022/jul/tax-consequences-real-property-foreclosures.html

 

*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.

Foreclosed real estate property with escrow accounts

based on what you provided  the escrow goes away and the mortgage balance is reduce by the $20K to $160K

 

what we don't know is the FMV of the property  and that affects the proper recording

 

say it's  FMV is more that the adjusted mortgage balance of $160K

 

the sale s price                                                         $160K

cost                                                      $200K

accum depr                                          150K               50K 

 

gain  subject to section 1250 recapture              $110K

 

 

fmv less         say 110K                                            $110K

Net value same as above                                          50K

gain subject to section1250 recapture               $ 60K

and ordinary income from debt forgiven           $ 50K normally the bank will send you a 1099C for the debt forgiven if any

 

Foreclosed real estate property with escrow accounts

Thank you for answering my question. I really appreciate your help! 

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