So far, we have not seen a stimulus plan that directly impacts the real estate market. We’ve only witnessed states issue an executive order to halt eviction for renters and homeowners. Though that is a great decision both humanely and politically, what about those landlords who funneled their hard-earned money into the market? Are they left to suffer? It is self-evident that real estate investors need their stimulus plan immediately; let’s hope the government will hear their plea.

However, let’s assume the worst-case scenario. What happens if this “rescue” never comes and the bank repossesses their property? What’s the tax treatment on it? It may come as a surprise that even if you lose your property, you may still have some taxable income to recognize. For example:

Lisa purchased her rental property for $500,000 with a down payment of $50,000.

Her outstanding recourse debt at foreclosure is $430,000.

The fair market value at foreclosure is $400,000.

The adjusted basis at foreclosure is $370,000

Therefore, her gain is $30,000 ($400,000 – 370,000)

The California Public Accountancy Corp will continue to update you with more COVID-19 relief efforts once they become available.