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Question for the Money Doctors

Question submitted on Jan 6, 2013.

Question

Can I set up a real estate business, fund it, sell my upside down condominium to it, have the business default on the note to me, and write it off on my personal Fed/State tax return?

Patrick

Answer

While I must admire your creativity, I regret to inform you that there are several potential problems with the transaction that you are proposing.

First, there needs to be a valid business purpose other than the avoidance of taxes.

Second, writing off the note could potentially generate cancellation of debt income for the entity you have created.

Lastly, losses between related parties (you and an entity controlled by you) are generally disallowed under Internal Revenue Code Section 267.


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