The elite have not been immune to the foreclosure woes that have swept the nation. Singer R. Kelly has become the latest celebrity to lose a home to foreclosure when his 20,000 square foot house was auctioned and brought in less than $1 million. The current mortgage on the home is estimated at $3.5 million. Florida has been one of the hardest-hit states in terms of foreclosure activity, but other states are also feeling the bite of the auction block.
The singer has been referred to as one of the best-selling artists in music history and has collaborated with other big-name singers to perform and write music. The bank claims that despite selling more than 38.5 million records in the United States, Kelly failed to pay the mortgage on his Illinois home. He attempted to sell the home on his own but was unable to find a suitable buyer.
Foreclosure losses can sometimes be declared as a loss on income tax, but in most cases the foreclosure is treated as a sale for tax purposes. However, if Kelly did not consider the home his primary residence and bought it for investment purposes, it is possible he can take a tax break. Filing for bankruptcy could discharge the balance of the debt, as well.
Debtors who are faced with foreclosure should consider not only the principal debt but also the tax consequences of a foreclosure and the possible residual debt that may result if the residence is sold at a loss. A Miami bankruptcy attorney may be able to help these debtors find options to minimize financial exposure.
Source: Forbes, “You are not alone: R. Kelly joins taxpayers who have lost homes due to foreclosure,” Kelly Phillips Erb, March 21, 2013