While you clearly have an economic loss, tax rules prevent you from deducting the decline in value from your $120,000 purchase price to the value at the time you converted the condo to rental property. What’s more, depending on the amount of depreciation claimed on the condo from the time of conversion, you may actually have a tax gain (even though you have a financial loss). Talk with a tax pro to run the numbers in your situation.
A tax triggered if certain tax benefits reduce your regular income tax below the tax computed on Form 6251 for AMT purposes.