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
i received a 1099a with a principal balance of $88,4000, the fair market value is $20,800. The house was sold. How much will i owe??
Hi markdempsey,
As far as I can understand, the property was sold off for the fair market value, i.e - $20,800. The rest of the amount that you owe as the principal balance will be owed by you ($88,4000 - $20,800 = 863200). Thus, you will have to pay $863200 to the lender.
As far as I can understand, the property was sold off for the fair market value, i.e - $20,800. The rest of the amount that you owe as the principal balance will be owed by you ($88,4000 - $20,800 = 863200). Thus, you will have to pay $863200 to the lender.
i have a 1st & 2nd mortgage and am thinking of doing a deed of lieu will the 1st mortgage co who files this include the 2nd mortgage automatically (total for both is approx 60,000)
hi rl,
the second mortgage lender will have to agree to the option of deed in lieu of foreclosure. unless they agree, the first mortgage lender may not accept your deed in lieu of foreclosure request.
thanks
the second mortgage lender will have to agree to the option of deed in lieu of foreclosure. unless they agree, the first mortgage lender may not accept your deed in lieu of foreclosure request.
thanks
Can this debt be forgiven by the IRS, if the property was purchased as a single family resident 7 years ago. I got married moved in with my husband, than tried to rent it out in this rough economy. Was unemployed and tenants were not able to pay. I did receive a 1099A this yr. showing FMV much lower then principle balance?
Hi Guest,
The lender can forgive the deficient balance resulting from the sale of the property. In that case, you will receive a 1099c form and the forgiven balance will be considered as taxable by the IRS. But depending upon the Mortgage Debt Relief Act, which has been extended, you may not have to pay any taxes.
Thanks
The lender can forgive the deficient balance resulting from the sale of the property. In that case, you will receive a 1099c form and the forgiven balance will be considered as taxable by the IRS. But depending upon the Mortgage Debt Relief Act, which has been extended, you may not have to pay any taxes.
Thanks
house is worth 210.000 owe 266.000 behind 2 monthes i want to give house to bank did not redeem the property orreaffirm the debt continue to make regular payments claimed as exempt
Hi zeus!
Welcome to the forums!
As you haven't reaffirmed the mortgage when you filed for bankruptcy, you won't be personally liable for paying the loan any more. You can surrender the property to the lender in order to get rid of it. He will sell off the property and try to recover as much dues as possible.
Feel free to ask if you've further queries.
Sussane
Welcome to the forums!
As you haven't reaffirmed the mortgage when you filed for bankruptcy, you won't be personally liable for paying the loan any more. You can surrender the property to the lender in order to get rid of it. He will sell off the property and try to recover as much dues as possible.
Feel free to ask if you've further queries.
Sussane
I have read these posts and still am confused over this topic. I bought the house in May 2003 and kept it as the primary residence until October 2006. My wife and kids lived there and I had to rent some 150 miles away in order to have employment. When I bought the home we now call our primary residence, I had to take out an equity line in order to have a down payment and to pay for repairs to the "new" home. I had paid interest on the equity loan until I became disabled in 2011 and subsequently could not work any more. I in effect abandoned the home in late 2011 and the bank would notaquire the home because of the substantial deficit in loan to value. I now have a 1099c...does this qualify because I am not able to pay the taxes alledgedly incurred.
Hi jakel,
When you receive a 1099c form, it means that your outstanding debts have been forgiven by the lender. There is a high chance that your property has been sold off. However, you should note here that you won't be liable for paying taxes on the forgiven debt because of Mortgage Debt Relief Act.
Thanks
When you receive a 1099c form, it means that your outstanding debts have been forgiven by the lender. There is a high chance that your property has been sold off. However, you should note here that you won't be liable for paying taxes on the forgiven debt because of Mortgage Debt Relief Act.
Thanks
we got a 1099a acquisition for property from beneficial fouse i live in
or the home
or the home
we got 1099a from beneficial but we still live in are home why would they send us this acquisition for property from
I received a 1099A and I am liable for the repayment of the debt, I am in the state of Florida, what can I do.