For example, assume a taxpayer owes $100,000 on a rental property which has been foreclosed and the debt is forgiven. Normally the $100,000 debt forgiven is taxable income to him. Further assume the taxpayer is insolvent and owns a second rental property with a basis of $250,000. The taxpayer can elect to reduce the basis of the second property to $150,000 instead of paying tax on the $100,000 of debt forgiven. Please call us if you have any questions about this election.
|