I have a rental property that has approximately an accumulated $100,000 in passive loss. If I let this rental property go into foreclosure, can I apply the $100,000 passive loss against my annual w-2 income of $300,000? Does that mean that for the tax year of 2009 that my taxable income will be reduced down to only $200,000? This question is regarding passive loss after the sell or foreclosure of a rental property and NOT the tax effects while I still own the property.
Sorry, comments are closed.
Comment by
the tax lady
4 Dec 2009
I suggest you hire a professional and double check their work if you lose the house.
On your 1040, you will show your income of $300,000 (nice).
You will show the passive loss on the schedule E as you will have disposed of the property.
Any shortfall on the loan (aka cancelled debt on 1099-C) goes on schedule E in the year you get the 1099-C.
You will show the forelosure on form 4797. If it’s a gain, it flows through schedule D and if it’s a loss, it flows to line 14.