? for real estate Investors regarding depreciation during foreclosure

[porkchopcash]

I am sure I will have a loss on almost all of the properties based on the short sale offers I received. In this market these low priced properties have lost about 2/3rds of their value but most have only been depreciated for 8-10 years.
As for the loss carried forward, I will not see any of that until 2012 when I file taxes. The bk will be discharged and over before then. How will this become property of the bk estate?
Thanks for this interesting discussion.

[debee]

I don't know your particulars or timing issues in terms of disposition, filing, and/or discharge, porkchop. Lots of issues there in terms of the estate that's formed when you file, whether it has enough income to require filing, whether any of your lenders lift stay and foreclose during your filing, etc. CPA territory.

Any tax attributes that pass back to you (unused) from the bankruptcy estate, or that you carryover or acquire in the year in which you also exclude COD income because of the bankruptcy will have to be reduced. You can use the NOL to reduce the basis in a depreciable asset as a first choice, next you have to reduce any net operating loss for the tax year in which the debt cancellation takes place, and any net operating loss carryover to that tax year. There's a list and prescribed order for doing it and I believe it can be found in IRC §108.

IRC §108(b)(4)(A) states that the tax attributes are reduced after the tax for the taxable year of the discharge is determined. In your case, if your discharge occurs in April 2011, the tax attributes (NOLs, certain tax credits, capital loss carryovers, basis of property) would be reduced just after 12/31/11.

[SweetGeorgia]

Man, I need to read more IRS publications! I had forgotten about NOL carryover entirely, still don't know if it would be relevant for us, but anyway...

When talking about the foreclosure price as the disposition price, I was probably reading the Capital Gains Schedule Instructions, but there is also a Foreclosure Publication (4681) that has a lot of information. It also refers you to Publication 544 on Gains and Losses.

But really, I didn't look it up until I was doing my taxes with TurboTax. When I input the rental property information, it kept coming up with losses and I couldn't figure out why...

[justbroke]

Sheesh... I don't think I've had an NOL (carryback or carryforward) i years! I miss them!!!!

[porkchopcash]

jasymoice,
Could you elaborate more on your reply.
I am interested in hearing your logic and a more in depth explanation.
Thanks for the discussion.