I am a Real Estate self employed agent. We have a buyer that has litigation that his basement leaks and he does not want his home. Although I am covered with Errors and Ommissions insurance, the buyer wants settlement for the insurance comany to buy back the home. The insurance company will not do that. The insurance company has suggested I buy the home and use it as an uninsured business loss and write the whole thing off on taxes as uninsured loss or bad debt. The cost of the home the buyer wants is $42,000. It is in very bad shape and would take a long time to even rent out in its current condition. Can this whole business loss be wrote off?

Zip Code: 62226

Tough question.

I would say that if you were to write this person a check for $42k, and not take title to the house, that payment would be deductible to you as a business expense.

If you write this person a check for $42k and then take title of the home, it seems that you would not claim a loss this year, and instead would be the proud owner of a piece of property with a basis of $42k.

Perhaps it make sense to write this person 2 checks. One to purchase the home for its appraised value. And a second to repay this person for their losses. This would at least allow you to write off the true value of the losses you will incur.

I would definitely recommend that you get a second opinion from your tax preparer who hopefully works with a lot of real estate professionals. If you don't have one, check out www.FindAGoodCPA.com. There are a few dozen CPAs and EAs listed on that site's directories who deal with real estate agents and brokers.

Zip Code: 01801