Can a rental qualify for relief from debt cancellation?
August 12, 2011
Date: 30 Oct 2008
Subject: Re: Short Sale/Foreclosure
I wanted to compliment you on the excellent article you wrote on short sales that is on your website.
What happens if someone had a house that was their principal residence but was converted to a rental a year or two before a short sale. Do they qualify for relief from debt cancellation for a principal residence?
Thanks for your help.
Date: 5 Nov 2008
The only guidance that we have about this question is the Internal Revenue Code adopting tax relief for cancellation of debt for a principal residence. Section 108(h)(2) says that qualified principal residence indebtedness is acquisition indebtedness qualifying for a tax deduction for principal residence interest as an itemized deduction under Section 163(h)(3)(B).
A rental residence doesn't qualify for this deduction and therefore a debt cancellation for a rental residence doesn't appear to qualify for the exclusion.
We have more answers to frequently asked real estate tax questions! We also offer up-to-date information about new tax real estate tax developments in Michael Gray, CPA's Real Estate Tax Letter.
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