Tax Implications of HOA Foreclosure on Rental Property

[daninflorida]

I had a rental property which was foreclosed on by the HOA in 2011 for a minimal sales price in the low thousands. The lender has not aken any action yet so there is currently no cancelled debt to deal with. The original purchase price of the property was over $250,000.

What is the correct way to deal withe the Taxes for 2011. Is it simply a loss on disposition which is deductible since the property is a rental and has been depreciated over the past few years? and then wait and see what the lender does?

Please provide any assistance you can. I will provide additional information as needed.

Thanks.

[flyingron]

You have to tell us what state this is.

If there is further recourse and the lender has not forgiven the debt, then yes, you treat it as if you sold it for the foreclosure price in the tax year the sale occurred. You'll have to recapture the depreciation, etc...

When the lender forgives the debt, that will become income to you when it occurs.

[daninflorida]

Sorry forgot those details, the property is in Florida and the loan does have recourse.

Thanks.

[flyingron]

Yes, then I believe what I said is correct. Handle the sale on last years taxes and be prepared for the hit this year for the forgiveness.