Clientbusiness property loss.

[JONI9611]

Client bought a house to fix up and sell. He lost house to county because he was behind in property taxes. How do I handle the loss?

[sjrcpa]

I think its a sale for the amount owed.

[sjrcpa]

He's not going to redeem it?

[JONI9611]

He only owed 4000 in property taxes and the house was worth 75000.

[BobKamman]

Fishy.  When did he buy it?  Were taxes owed on it then?  When did he sell it?  What did he do with it during the period he owned it?  Who has title to house now?  Usually, the county doesn't take possession -- the high bidder at an auction gets it.  Any proceeds above the tax amount owed and auction costs, go to the owner.  

[sjrcpa]

And the "owner" has XXX days or months to buy it back from the high bidder for the taxes plus interest.

It was rather lucrative in MD for bidders for a while when the statutory interest rate was 13%

[taxes96786]

How much is he out of pocket? Did he pay cash or did he owe? How much did he pay in expenses for repairs, etc? His loss is limited to his financial output on a sale of business property form.

[BobKamman]

Different procedures in different states, but it's likely there is more to the story than what we are being told (and what the preparer who asked was told).  The interest rate in my state is 16%, but some purchasers don't notice that there are existing liens that are not extinguished, or that the property can end up in bankruptcy court for many years. 

Taxpayer may have paid $75K for the property -- but did he have title insurance?  Or did it come with a $100K federal tax lien?

[BobKamman]

We don't know it was business property.  Schedule C?  Schedule D?  Form 4797?  Doesn't hurt to guess, not our client.  

[JONI9611]

He bought property in 2010 for 45000. He put 30000 into it with repairs. He was going to flip it. He took a home equity on his house to finance the other property. He owed 3500 in property taxes to the county. They ended up selling it for 5500.

[qbteachmt]

"He was going to flip it."

Oh, come on. You don't sit on something for 10 years, if you intend to Flip it. Intent doesn't describe the facts of what this was all those years.

I think the client has to come up with a better story.

[taxes96786]

I totally agree, I flipped two houses and a condo in less than 12 months.

[qbteachmt]

"in less than 12 months."

Exactly. The carrying costs alone, from 2010 to current, would kill any deal. And that's why, in that interim, either this house sat empty, or it had some use (status) that isn't being explained here. "Flip" isn't "I'll buy it now and sell it in the future." Flip = a quick turnover, and calling this Business Loss means there are some activities also not explained here, such as rental or perhaps multiple properties were flipped, while this one malingered.