Q. I am buying investment property in the Bahamas. I am now convinced that it is not a good investment since I anticipate future political problems in that area. I plan to forfit all rights in the property by not making further payments. How should I declare this loss for income tax purpose?
A. If you jave a mortgage on the property and you abandon the property so that the abandonment is what the Internal Revenue Service calls an "identifiable event" (this is strengthened by the mortgage foreclosing on the property), in all probability you can have a capital loss.
The year in which you can take the loss is the year in which the "identifiable event" occurs. This is the year of your definite, unequivocal abandonment, that is, your "identifiable event."
The loss is measured by the difference between your adjusted property basis (purchase price plus or minus adjustments) and the amount of your obligation cancelled by the mortgagee upon retaking posession and ownership of the property.
But I know of one case in which the taxpayer advised the mortgage that he was abandoning the property and refused liable on the mortgage). The amount of the mortgage exceeded the value of the property. Although title remained in the taxpayer and foreclosure was not completed, the taxpayer was allowed an ordinary, not a capital loss.
I know of another case in which there was an "abandonment" and a later of foreclosure sale by the mortgagee. The foreclosure sale, rather then the "abandonment," was held to be the "identifiable event."
So, be certain to establish your identifiable event. For example, notify the mortgagee and seller by certified mail, return receipt requested, of your abandonment and refusal to make further payments. In addition, you might consider: (1) consulting a competent tax attorney or tax advisor, or (2) requesting a ruling from the Assistant Commissioner (Technical), Internal Revenue Service, 1111 Constitution Ave. NW, Washington 20224.
State your facts completely, accurately and in chronological sequence.
Earl A. Snyder answers questions only in the column. His address: 14909 Kalmia Dr., Laurel, Md., 20810.