Posted on: 08th Feb, 2008 01:35pm
If your house goes into foreclosure and it sells for less than what you owe on the property, there will be a deficiency. As a borrower, you're liable to pay it off. In case, your lender forgives this deficiency, it'll be considered as your taxable income. You'll be sent a 1099-A Form by the lender and you'll have to report the income to the IRS. Similarly, if your lender modifies the terms of the loan and it results in cancellation of a certain portion of the debt, the cancelled debt amount will be taxed by the IRS.
What is 1099A Form and why is it sent to you?
Your lender is required to report the deficiency from the foreclosure or the short sale to the IRS for tax purposes. This is why they send you 1099-A Form, which is mainly for informational purpose. However, if you receive a 1099A Form, it doesn't mean the deficiency has been forgiven. The lender can come after you in future to collect the debt.
If the lender forgives the debt, you'll receive a Form 1099-C. It suggests that the remainder of the debt has been cancelled and the lender will not come after you to collect the debt. You'll be required to report this as your income on the tax return.
If the lender forgives the debt, you'll receive a Form 1099-C. It suggests that the remainder of the debt has been cancelled and the lender will not come after you to collect the debt. You'll be required to report this as your income on the tax return.
Is there an exemption from paying taxes on this income?
If the mortgage is a recourse loan, you will owe taxes to the IRS on the cancelled debt amount. But the Mortgage Forgiveness Debt Relief Act, 2007 does allow you to exclude the cancelled debt amount from your gross income under certain conditions.
However, in case the mortgage is a non-recourse loan, the lender cannot come after you to collect the deficiency. They have to be satisfied with whatever they get from the sale of the collateral. So, even if there's a deficiency, it will not be considered as your cancellation of debt income. Thus, you will owe no taxes to the IRS due to the deficiency on the non-recourse loan.
However, in case the mortgage is a non-recourse loan, the lender cannot come after you to collect the deficiency. They have to be satisfied with whatever they get from the sale of the collateral. So, even if there's a deficiency, it will not be considered as your cancellation of debt income. Thus, you will owe no taxes to the IRS due to the deficiency on the non-recourse loan.
iT SHOWS WHAT WE OWED AND WHAT THEY SAY WAS FAIR MARKET OR REALY WHAT IT SOLD FOR AT THE AUCTION. SO THE DIFFERENCE WOULD BE INCOME RIGHT? CAN I USE THAT AS A LOST ON MY INCOME TAX FOR MY HOME? NEED HELP
FMV is 15k over balance on 1099-a. Bought in 05, bank aquired in 08. No 1099-C. Is the 15K forgiven?
What do I file the sale price as, the balance or FMV? Basis was 220K.
This is one confusing form and answers all over the place.
Thanks in advance
What do I file the sale price as, the balance or FMV? Basis was 220K.
This is one confusing form and answers all over the place.
Thanks in advance
I was liable for the debt
Hi shack,
As you did not receive a 1099-c, your debts were not forgiven by the lender. The sale price is the amount for which your lender sold off the property. If you are facing problems in filling out the form, you can contact your tax consultant and he will help you in filling out the form.
Thanks
As you did not receive a 1099-c, your debts were not forgiven by the lender. The sale price is the amount for which your lender sold off the property. If you are facing problems in filling out the form, you can contact your tax consultant and he will help you in filling out the form.
Thanks
I have lived in my home for 10 years but I just can't afford it. The house compares to 185k to 190k and I owe 270k. I live in California. How long does it take to be asked to leave? I need to save up money to have so I can rent. I have stopped making the mortage payment so I can save up the money so I can have a roof over my head. Countrywide did me no favors and it is walk away from this house or loose it in a year.
I refianced for fixer up money on this house but I do not have any receipts.
What are the tax implications and how long can I stay in the house .
I refianced for fixer up money on this house but I do not have any receipts.
What are the tax implications and how long can I stay in the house .
Hi guest!
Welcome to forums!
The lender can foreclose the property if you do not pay the mortgage dues for more than 3 months. If you want to save the property, you can apply for a loan modification. However, if you do not want to save the property, then walking away from the property can be a good option as in California, the lender will not be able to sue you for the deficient amount. As far as the taxes on the forgiven amount is concerned, you may not have to pay them depending upon your state laws.
Feel free to ask if you have further queries.
Sussane
Welcome to forums!
The lender can foreclose the property if you do not pay the mortgage dues for more than 3 months. If you want to save the property, you can apply for a loan modification. However, if you do not want to save the property, then walking away from the property can be a good option as in California, the lender will not be able to sue you for the deficient amount. As far as the taxes on the forgiven amount is concerned, you may not have to pay them depending upon your state laws.
Feel free to ask if you have further queries.
Sussane
Do anybody know if a lender (2nd mortgage holder) can sue for deficient amount in Florida after a short sale ? This is assuming the 2nd mortgage debt wasnt completely forgiven at closing. I know this varies from state to state so I was just wondering about Florida in particular. Thanks.
hi chrisn,
the second mortgage lender can sue you for the deficient amount resulting from the short sale of the property. if you're unable to pay the deficient amount, the lender may place lien on your other properties.
the second mortgage lender can sue you for the deficient amount resulting from the short sale of the property. if you're unable to pay the deficient amount, the lender may place lien on your other properties.
ch 7 discharge nov 2008, first & second mortgage both not reaffirmed, to avoid taxes, is it better to do a deed in lieu of foreclosure, or better just to walk away? basis is $160k, loans about $800k. married.
thanks!
thanks!
You can apply for a deed in lieu foreclosure in order to get rid of the property. As you've not reaffirmed the debt, you are not personally liable to pay off the debts. The lender only be able to recover the collateral from you. He will not be able to sue you for the deficient amount. However, this would lower your credit score by around 250 points.
if i short sell my investment property and bank has the option to pursue the remainder of the balance due on their loan, can this be discharged in chapter 7 bankruptcy? il
Hi Joanneliza,
As far as I know, the deficiency balance resulting from the short sale of the property would be considered as your unsecured debt. So there are chances that this would be discharged if you file Chapter 7 bankruptcy. However, it would be a better option if you could consult a bankruptcy attorney and take his opinion in this regard.
Thanks
As far as I know, the deficiency balance resulting from the short sale of the property would be considered as your unsecured debt. So there are chances that this would be discharged if you file Chapter 7 bankruptcy. However, it would be a better option if you could consult a bankruptcy attorney and take his opinion in this regard.
Thanks
When I was going through with my Deed in Lieu Countrywide told me that the price of the house would be the fair market value listed on the 1099. After my Deed in Lieu went through I seen several months later my place sold for way less than the fair market value. When they send my 1099 will they have to list the fair market value on it like they said or can they put the selling price on there?
Hi Bugger,
As far as I know, the lender will list the fair market value of the property in the 1099 form and not the selling price.
As far as I know, the lender will list the fair market value of the property in the 1099 form and not the selling price.
If I have an investment property (never lived in the home) and am being offerred a DIL by the lender, (looks like we will be approved for this) would this be a better opion than going through full foreclosure and what are my tax implications (IRS) if I take th DIL deal?
Hi Betsey!
Welcome to forums!
It is a better option to go for a deed in lieu of foreclosure rather than letting the lender foreclose the property. Your deficient balance will be forgiven by the lender. Depending upon the state laws you'll not have to pay any taxes on the forgiven amount.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
It is a better option to go for a deed in lieu of foreclosure rather than letting the lender foreclose the property. Your deficient balance will be forgiven by the lender. Depending upon the state laws you'll not have to pay any taxes on the forgiven amount.
Feel free to ask if you've further queries.
Sussane