Today TaxMama hears from Melissa in Florida with this problem. “I paid a deposit and rate lock fee on a pre-construction condo on the Miami River in Oct 04. Closing is due in June 2008. I really cannot afford to buy this condo and make monthly mortgage payments. What is best? If I do not close and lose my deposit and rate lock fee, can I write them off as a loss? Or if I close on this condo and it sells at a loss, what will I be able to write off?”
Just curious. Why did you buy a condo, knowing the payments (since you have a rate lock) that you can’t afford?
Well, I have bad news for you.
1) There is no write off for losses on the sale of personal homes.
2) If you lose your deposit, since it’s for a personal home, I don’t see any write-offs, for the loss of the deposit.
3) Worst news of all, if you don’t complete the sale, will you be obligated for the loan at all? How will this affect your credit?
On the other hand, since you’ve never moved in, you might be able to justify this as an investment loss. In that case, you’ll be able to write off the loss on Schedule D. You’ll be able to use $3,000 per year, in excess of any capital gains you might have – until the loss is all used up.
The only problem with that scenario is, to get the mortgage for the house, you’ve already declared that the mortgage is for a home loan – not an investment.
Personally, I’d be doing some in-depth research into all the pros and cons in the few days you have left.
Is there any chance you can sell the unit before your closing deadline for your current purchase price? Probably not. I’d also bet that you’re not the only one in this position. If the unit is now worth less than your contracted purchase price, can you negotiate the price down? Speak with an attorney who might be prepared to represent other buyers, too.
Otherwise, can you afford the place if you had a roommate?
You had 4 years to deal with this. The market has been terrible for over a year. And, now, at the last minute, you’re looking for a way out?
Worst case, you’ve learned an expensive lesson. But it won’t break you, since you’ve already spent the money years ago.
And remember, you can find answers to all kinds of questions about bad investments and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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