deed in lieu tax implication

[tomvtv]

What is the tax implication for deed in lieu foreclosure?

[Vanessa A]

It depends.  It may have tax consequences or it may not.  It will depend on the amount of debt you owe, and the market value of the property and your cost basis in the property.

If your cost basis in the property is greater than the market value or the amount you owe, then you would not have any tax liability on this transaction.

However, if your cost basis is less than the amount you owe or the FMV, then you would have a gain and a tax liability. 

[tomvtv]

How can I remove that property (from Deed in lieu) from my account?

I was rent out for 3 months in 2025.  Can I still deduct for those  3 months?

It transfer back to the lender (from Deed in lieu) later this month.

How can I remove that property from my file?

Plz advise

[Vanessa A]

Why are you removing it? Did this occur in 2024 or 2025?  Did you put it on your 2024 taxes? Whether or not it was taxable, it should still be reported, but it should be reported in the year that it happens.  

What does the rent have to do with it?  Rent is not a deductible expense for any personal reasons.

If you surrendered the property and are receiving a benefit from it (no more mortgage) then you would not remove it from your file unless you are reporting it on the wrong year.

If you are reporting it on the wrong years return, then you would go back to the spot where you entered it and then click the trash can to delete it or just remove all the entries. 

[tomvtv]

I have acquired the property in July 2024 and put on tax for 2024 and rented out until Mar 2025.  It will be transferred with deed in lieu next week.  

Once the deed in lieu is completed which means I don't the property anymore, shouldn't it removed my tax return for 2025.  I won't have a mortgage after transfer.  What is the reason to keep the property on my file after it has been transferred to the lender.  This is where I am confused.

Plz advise

[Vanessa A]

When you say keep it on your tax, are you talking about taking the mortgage interest deduction or the rental income?  If so, then yes, you can remove them when you file your 2026 return (filed in 2027).  If you are renting the property still in 2025, the income will have to be reported on your 2025 return.  When you complete your 2025 return, you will mark that you disposed of the rental property and then it will be removed from your taxes for the next year. 

I thought you were referring to the sale of the property.  That DOES need to be reported in the year you sell it.  However, once everything is done, you can remove everything related to the property from your tax return for the following year.