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
How long after the debt in lieu is finished do you have to move.
hi kld,
after a deed in lieu of foreclosure is over, you will receive an eviction letter from your lender. this notice will mention the time period within which you will have to leave the property. this time period may vary from 3 days to 1 month.
thanks
after a deed in lieu of foreclosure is over, you will receive an eviction letter from your lender. this notice will mention the time period within which you will have to leave the property. this time period may vary from 3 days to 1 month.
thanks
Are there ever any extenuating circumstances. My son and daughter had a foreclosure and could not buy a house. We bought it in our name and then they moved off and left us hanging. We have never actually lived in the house, but it is in our name. We rented it out for a year and now have no renter and have lost money with each month. What is the answer for us. We are in our retirement years and cannot to pay for this house. We have our own house.
Hi Guest!
Welcome to forums!
I must say that you're in a tough situation. Nevertheless, if you want to get rid of the property, then you can apply for a deed in lieu of foreclosure. This will help you in selling off the concerned property and you won't be liable for paying the deficient balance resulting from the sale of the property. However, a deed in lieu of foreclosure will reduce your credit scores by 250 points.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
I must say that you're in a tough situation. Nevertheless, if you want to get rid of the property, then you can apply for a deed in lieu of foreclosure. This will help you in selling off the concerned property and you won't be liable for paying the deficient balance resulting from the sale of the property. However, a deed in lieu of foreclosure will reduce your credit scores by 250 points.
Feel free to ask if you've further queries.
Sussane
I only got a 1099c for a foreclosure in Jan 2011 should I have gotten a 1099a also...and can I deduct the interest portion of the 1099c from the toatol.Thanks
Hi JK!
Welcome to forums!
You will receive the 1099c form if your debts have been forgiven by your lender. The forgiven debts are taxable but but depending upon the Mortgage Forgiveness Debt Relief Act, you won't be liable for paying any taxes.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You will receive the 1099c form if your debts have been forgiven by your lender. The forgiven debts are taxable but but depending upon the Mortgage Forgiveness Debt Relief Act, you won't be liable for paying any taxes.
Feel free to ask if you've further queries.
Sussane
my loan was a refi not purchase money I do not qualify for mort forgive act........how about 1099a should i have gotten one ...also can I deduct the interest portion of the 1099c from the total
Welcome jk,
If the property was foreclosed by the lender, then you will surely receive a 1099a form. You won't receive a 1099c form as it was a refinanced property. You will be liable for paying the deficient balance resulting from the sale of the property.
If the property was foreclosed by the lender, then you will surely receive a 1099a form. You won't receive a 1099c form as it was a refinanced property. You will be liable for paying the deficient balance resulting from the sale of the property.
Hello,
My husband and I recently bought a new home with great anticipation that our condo was selling. Our condo sale fell through and we are now stuck with a property we cannot rent and need to sell to 55+(long story). We lived in the condo for 4.5 yrs up until a month ago and are now trying to work out a Deed in Lieu of Foreclosure. Would the condo qualify as a "principle residence" for the Mortgage Debt Relief Act? Also, so short sale, Deed in Lieu, and Foreclosure dificiencies all qualify equally? We haven't decided on the route we are going to take.
My husband and I recently bought a new home with great anticipation that our condo was selling. Our condo sale fell through and we are now stuck with a property we cannot rent and need to sell to 55+(long story). We lived in the condo for 4.5 yrs up until a month ago and are now trying to work out a Deed in Lieu of Foreclosure. Would the condo qualify as a "principle residence" for the Mortgage Debt Relief Act? Also, so short sale, Deed in Lieu, and Foreclosure dificiencies all qualify equally? We haven't decided on the route we are going to take.
Hi Guest,
As far as I can understand, your condo will be considered as your principal residence. If you go for a deed in lieu of foreclosure, you will be able to go for Mortgage Forgiveness Debt Relief Act.
Thanks
As far as I can understand, your condo will be considered as your principal residence. If you go for a deed in lieu of foreclosure, you will be able to go for Mortgage Forgiveness Debt Relief Act.
Thanks
My house was foreclosed on in 2011. I received a 1099A. When deducting line 4 from 2 its a negative 12092. How will this work for taxes? will I have to pay?
Hi wingo,
Your query has been replied to in the given page: http://www.mortgagefit.com/Mortgage-Basics/1099A.html . Please take a look at it. I hope it will help you.
Thanks
Your query has been replied to in the given page: http://www.mortgagefit.com/Mortgage-Basics/1099A.html . Please take a look at it. I hope it will help you.
Thanks
My daughter was foreclosed on her condo in may, 2011. The local law firm managing the foreclosure offered her money to move by the end of June- she did, and rcvd it. I helped her file her taxes at the end of Jan, 2012, but in 1st week of Feb, she recvd a 1099-misc for the cash to move, and a 1099-a from the bank. 1) She knows that she needs to file amended returns for fed & state (MN) for the misc income- is there a penalty if after apr 15? 2)She never rcvd a 1099-c, She has written the mortgage company asking for a copy- what if they didn't forgive the debt? Does she still file amended return for the 1099-a?? Pub 4681 is not very clear. Any help would be appreciated.
Hi davidhagen,
Well, your daughter should take a tax adviser's opinion in order to know whether or not there is any penalty for filing the amended tax returns after April 15th. If she never received a 1099c, it means that her deficient balance was not forgiven by the lender.
Thanks
Well, your daughter should take a tax adviser's opinion in order to know whether or not there is any penalty for filing the amended tax returns after April 15th. If she never received a 1099c, it means that her deficient balance was not forgiven by the lender.
Thanks
I received 2 1099-a for the same forclosure on my primary residence. One has the bowwerwer personally liable box checked and the other does not. How do I handle this on my taxes?