Posted on: 27th Aug, 2010 12:23 pm
We have recently filed Chapter 7 and are thinking about doing a DIL on our home. We owe 180,000 and the assessed value of the home is currently 130,000. Would we have to pay taxes on the difference, or can we include this amount on the bankruptcy?
Hi sumami!
Welcome to forums!
In case of a deed in lieu of foreclosure, the lender will forgive the balance dues resulting from the property sale. Thus, you won't have to pay the difference to the lender. As far as the taxes on the forgiven balance is concerned, it will get forgiven under Mortgage Debt Relief Act.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
In case of a deed in lieu of foreclosure, the lender will forgive the balance dues resulting from the property sale. Thus, you won't have to pay the difference to the lender. As far as the taxes on the forgiven balance is concerned, it will get forgiven under Mortgage Debt Relief Act.
Feel free to ask if you've further queries.
Sussane
You see, that confuses me. Under what circumstances would someone have to pay taxes on the difference, or are all taxes forgiven under this act? Thanks for your help. This is very confusing!
If your principle residence is sold off by the lender through a deed in lieu of foreclosure, then the lender forgives the balance dues resulting from the sale. The balance amount resulting from the property sale is considered as your income by the IRS. However, Mortgage Debt Relief Act has been extended till 2012 and under this Act, you won't have to pay taxes on the forgiven debt.