Today TaxMama hears from Somsak in the TaxQuips Forum, who is hurting, badly.
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“In 2005 I signed a contract to purchase 2 units in a pre-construction CondoTel in Orlando, Florida. I submitted a 20% down payment of $211,960.
In 2008 the project was completed, but only 47 out of 260 investors could close the escrows. The rest couldn’t because the mortgage lenders required 35-40% down payment to qualify and we had to disclose our income.
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After we couldn’t close the escrow for over a year, in 2010 the developer forced the rest of us to default the contract. They returned $84,784 to me and I lost $127,176.
My question is – can I send a 1099 MISC to the developer for $127,176 as their income; or how should I report this loss in my 2010 tax return?”
This is an EXPENSIVE lesson. I mean WOW!
OK, here’s a stupid question. Why did you enter into a contract in 2005, when you did not have the income to qualify for nearly a million dollars worth of loans? Did your income drop dramatically since then?
This kind of investing, with stated income loans, instead of real analysis of the buyer’s ability to afford a property, is the cause of the mortgage lending collapse that put banks, brokerages and lenders out of business in the last couple of years.
You can certainly try to send a 1099-MISC to the developer.
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After all, he has your money. But, what’s the point?
What do you do about the rest? Unfortunately, it’s a Schedule D, capital loss, limited to ,000 per year deduction over your annual capital gains.
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This could take you forever to recoup any money.
Have someone do some research for you to see if there is ANY way to justify this being a casualty loss. If there is, you’ll be able to use the loss immediately, and perhaps even carry it back a couple of years. I don’t really see how. Since it was predictable that you couldn’t really qualify for this loan. But a good researcher might find an interpretation that will work – since over 200 other people were affected. (Wow! 81.9% of the buyers were unqualified!!!! Does that explain the collapse?)
And remember, you can find answers to all kinds of questions about real estate losses and other tax issues, free. Where? Where else? At www.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 join TaxMama.
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com link – it’s free!]
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