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Re: Start by determining your basis costIn Reply to: Start by determining your basis cost posted by Rick, The Cranky Probate Guy (CA) on September 30, 2006 at 5:50 PM : Madonna - Greg's post is right on the money. : To make things simple, you need to determine how much yur basis is. That's another way of saying how much this property cost you or how much you paid, after considering down payment, loans, and rollover funds from other sources like 1031 exhanges, etc., that you're probably haven't complicated the calculation with. : Most likely, your basis is the sum of the down payment plus the loan that you got. If you, for example, purcashed the property for $350,000 putting $45K of Dad's money as a down payment, plus a $305,000 mortgage (whether a frist or combination of several loans) then your basis is $350,000. If the property were to go to foreclosure sale and the bank was the only bidder (actually they'd be a credit bidder) and the property was sold for anything less than the loan amount of $305K, say $250K, then the difference of $55K would be debt relief, in otherwords, money that you owed but did not have to pay back to the lender. IRS thinks this the same as $55K of income. So, IRS would see this amount as subject to taxation, absent an agreement with Uncle Sam to offset this. : If you had refinanced and took cash out later, meaning that this was not the original purchase money loan, your basis wouldn't change but the debt relief could be higher if the refi loan were greater than the original loan. : There are a number of Short Sale experts lingering around this board. Did I miss anything obvious here, like mess up purchase money vs. refi loan money? Heidi? Ward? : Rick Rick: Aren't you describing a short sale scenario. I am getting a bit confused. Joseph posted something saying the lender could sell for 70 percent of appraised value. I guess my question is how can the lender sell something they do not own for less than what is owed without the mortgagor's permission and consent? Plus, isn't it true that if the lender accepts the DIL...that is it. I agree that you are correct for a short sale. What am I missing? Good Luck, Follow Ups:
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