ordinary income vs capital gain

[scclark9]

What is the name of your state (only U.S. law)? florida

Hi,
My question is regarding capital gains vs ordinary income. My husband is a second mortgage holder to a piece of real property held as business investment. The property went into bankruptcy and my husband received a monthly check from the trustee while the property was under reorganiztion. Is that income capital gains or ordinary income? Also. for the 2011 tax year, this same property went into chapter 7 bankruptcy and was sold at auction. My husband will receive money for this as well although it will not be the full value of of the original second mortgage. The difference is 70.000$ Is there a loss here to offset the settlement?

Thanks for any and all help

 

[tranquility]

You never owned the property, how can it be capital gains?

In the trustee amounts, use your amortization schedules to determine how much was income and how much was principal paydown. In the chapter 7 sale, you will get to deduct the amount of the principal amount you did not get back as a bad debt and not take any income.