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
Hi rlkej!
Welcome to forums!
You should contact your lender and try to clarify the matter. He will be able to let you know as to why he has sent you two 1099a forms. You can even contact a tax adviser for the same.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You should contact your lender and try to clarify the matter. He will be able to let you know as to why he has sent you two 1099a forms. You can even contact a tax adviser for the same.
Feel free to ask if you've further queries.
Sussane
MY SETTLED CHAP.7 BKRPCY DID NOT INCLUDE MY VA LOAN HOUSE OR CAR BY MY REQUEST. I PAID 3 MORE MONTHS OF MORTGAGE AFTER BNKRPTTCY APROVAL, BUT CHASE NEVER REAFIRMED THE LOAN. WE WALKED AWAY A FEW MONTHS LATER. IT IS 3 YRS + SINCE BKRPCY. IF I WAS APPROVED A DEED IN LEU OF FORCLOUSURE WHAT WOULD THE RAMIFICATIONS BE FOR ME. THE HOUSE IS STILL IN MY NAME,I NO LONGER LIVE THERE,I AM 100% VA DISABLED SO I AM PROPERTY TAX EXEMPT, AND WAS EXEMPT DURING OWNERSHIP, CHASE HAS BEEN PAID 82K PLUS BY VA, AND THE FORCLOUSURE HAS BEEN SUSPENDED DUE TO ROBO SIGNING.
RICH :?:
RICH :?:
hi rich!
welcome to forums!
if you are approved for a deed in lieu of foreclosure, your property will be sold off. apart from that, it will be reported in your credit report and your credit scores will be lowered by around 250 points.
feel free to ask if you've further queries.
sussane
welcome to forums!
if you are approved for a deed in lieu of foreclosure, your property will be sold off. apart from that, it will be reported in your credit report and your credit scores will be lowered by around 250 points.
feel free to ask if you've further queries.
sussane
Hello, I filed bankruptcy in 2009 and am now (2012) filing for Deed in Lieu so that I can move the process along. Noone has lived there since 2009. Since I filed bankruptcy and my loan has been dicharged, will I be responsible for tax implications? Thanks for your advice.
Hi jaxtek,
You won't be liable for paying any deficient balance resulting from the sale of the property. However, this forgiven amount will be considered as your income by the IRS and you'll be liable for paying taxes.
You won't be liable for paying any deficient balance resulting from the sale of the property. However, this forgiven amount will be considered as your income by the IRS and you'll be liable for paying taxes.
i filed bankruptcy in 2010. i have been contacted to do a deed in lieu of foreclosure. they say that i will not be responsible for any taxes. do i need to get some other form from them before i sign these papers? a 1099c or a quick claims deed?
Hi donna,
If your property is sold off in a deed in lieu of foreclosure process after a bankruptcy discharge, then you won't be liable for paying any deficient balance to the lender. The forgiven debt is normally considered as a taxable income. You can ask the lender to give you in writing that you won't be taxed but it will be the lender's discretion whether or not he will consider doing that.
Thanks
If your property is sold off in a deed in lieu of foreclosure process after a bankruptcy discharge, then you won't be liable for paying any deficient balance to the lender. The forgiven debt is normally considered as a taxable income. You can ask the lender to give you in writing that you won't be taxed but it will be the lender's discretion whether or not he will consider doing that.
Thanks
We did the deed in lieu for our home. We just found out it has now sold. How do we find out if we will have to pay taxes on the difference between the amount the home sold for and the amount that was owed?
Hi Puzzled!
Welcome to forums!
If the property has been your primary residence, then you won't be liable for paying the deficient balance resulting from the deed in lieu of foreclosure sale of the property. Moreover, during the tax time, you will get the 1099c form for your forgiven debt.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If the property has been your primary residence, then you won't be liable for paying the deficient balance resulting from the deed in lieu of foreclosure sale of the property. Moreover, during the tax time, you will get the 1099c form for your forgiven debt.
Feel free to ask if you've further queries.
Sussane
listed my home for short sale. 1. I am underwater owe 265.000, listed 119.000, no second. 2. does home need to be sold by dec 2012 to qualify for debt forgiveness? Or do I qualify when I list? What about deed in lieu of forclosure? What are the chances that this bill will be extended past 2012.
Hi modiene,
Yes, the home needs to be sold off by December 2012 to qualify for debt forgiveness because till now the act has not been extended any further. To know all about deed in lieu of foreclosure, you can check out the given page: http://www.mortgagefit.com/deed-lieu.html .
Thanks
Yes, the home needs to be sold off by December 2012 to qualify for debt forgiveness because till now the act has not been extended any further. To know all about deed in lieu of foreclosure, you can check out the given page: http://www.mortgagefit.com/deed-lieu.html .
Thanks
i had a first and second mortgage on my principal resident of 27 years. i recently filed a bankruptcy (chapter 7) and reaffirmed my first mortgage only. the second mortgage was discharged in the bankruptcy. after attempting to coolect the debt for the past couple of years i received a letter from bac that my second mortgage will be forgiven under the mortgage forgiveness program of 2007! will i have to pay tax on the forgiven amount?
Hi R.d.!
Welcome to forums!
As the mortgage debt relief act is still in vogue, you won't be liable for paying any taxes on the forgiven debt.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
As the mortgage debt relief act is still in vogue, you won't be liable for paying any taxes on the forgiven debt.
Feel free to ask if you've further queries.
Sussane
I did a deed-in-lieu of foreclosure which explained They will forgive all debt related to this mortgage and will not hold me responsible for any defiencies. I received a 1099A instead of a 1099c. What should I do?
Hi Chass!
Welcome to forums!
You will receive a 1099a form in case of "Acquisition or Abandonment of Secured Property". In this case as you are giving away the property, so you may have received that form. You may be getting the 1099c form as well in a few days time.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You will receive a 1099a form in case of "Acquisition or Abandonment of Secured Property". In this case as you are giving away the property, so you may have received that form. You may be getting the 1099c form as well in a few days time.
Feel free to ask if you've further queries.
Sussane