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
if we ask for a deed in lieu of foreclosure, are we freed from the debt of the mortgage and of the home equity loan?
Hi Guest,
If there are two loans on your property, then I don't think the sale of the property would recover both the mortgages. In that case, you will have to pay off the second loan. However, you won't have to pay anything on the first loan. Even if there is a deficient amount on the first mortgage, it would be forgiven by the lender.
Thanks
If there are two loans on your property, then I don't think the sale of the property would recover both the mortgages. In that case, you will have to pay off the second loan. However, you won't have to pay anything on the first loan. Even if there is a deficient amount on the first mortgage, it would be forgiven by the lender.
Thanks
MAC:
That is actually INCORRECT. You do not have to file a Chapter 13 to get rid of that debt and you do NOT have to file it before the debt occurred.
Chapter 7 will get rid of it as well. AND, usually, you can file on it after the sale. At my job we like to tell people that it is probably BETTER to file the bankruptcy before the finalization HOWEVER you do not have to.
That is actually INCORRECT. You do not have to file a Chapter 13 to get rid of that debt and you do NOT have to file it before the debt occurred.
Chapter 7 will get rid of it as well. AND, usually, you can file on it after the sale. At my job we like to tell people that it is probably BETTER to file the bankruptcy before the finalization HOWEVER you do not have to.
I received a 2009 1099-A "Acquisition or Abandonment of Property." The existing balance of the loan is higher than the FMV. Do I have to file anything with the IRS this year? Please help.
Thanks
Thanks
3 yrs ago we purchased our son's home as a non-owner occ when his current loan was an ARM and he became ill and was unemployed. 5 months ago our son passed away and being in our 60's we cannot afford to make the payments. The last payment we made was Sept. Our loan is a Fannie Mae and there is a govt freeze on foreclosing at this time. The home is in Washington State.... which would be the best way to go to avoid paying back a deficiency? Our loan is $270,000 and assessed value is $199,000 with homes here selling for under assessed value. Thanks
Hi!
Welcome to forums!
To Ann,
Your query has been replied to in the given page:
http://www.mortgagefit.com/annoucements/about35279.html#152162
Take a look at it. Hope it helps you.
To Jan,
You should apply for a deed in lieu of foreclosure with your lender and try to sell off the property. You won't be liable for the deficient balance if the lender accepts your request.
Sussane
Welcome to forums!
To Ann,
Your query has been replied to in the given page:
http://www.mortgagefit.com/annoucements/about35279.html#152162
Take a look at it. Hope it helps you.
To Jan,
You should apply for a deed in lieu of foreclosure with your lender and try to sell off the property. You won't be liable for the deficient balance if the lender accepts your request.
Sussane
I did received a 1099A. box (1) 196,000.00, and box (2) 210,000.00
was an investment proterty.
According to what I read I do not have to reported anything right?
I still do not have the 1099C. It was florclosure in july
was an investment proterty.
According to what I read I do not have to reported anything right?
I still do not have the 1099C. It was florclosure in july
Hi jcaal!
Welcome to forums!
You would receive the form 1099c only when your deficient balance resulting from the sale of the property has been forgiven. I guess, the deficient balance in your case hasn't been forgiven by the lender. Thus, you are responsible to pay it off.
Sussane
Welcome to forums!
You would receive the form 1099c only when your deficient balance resulting from the sale of the property has been forgiven. I guess, the deficient balance in your case hasn't been forgiven by the lender. Thus, you are responsible to pay it off.
Sussane
Hi,
2006 I purchased my principal property for $712K put down payment of $143K and with a principal balance of $569K, I lived over a year and rented for 6 months, it was foreclosed 10/09 and the sold it for $360,000 in 12/09, a month ago my lender send me 1099-A form on box 4 the fair market value of my property was only $25K.Am I liable for repayment of debt? or cancellation of debt. Please I need your advise.
Thank you,
Angelo O
2006 I purchased my principal property for $712K put down payment of $143K and with a principal balance of $569K, I lived over a year and rented for 6 months, it was foreclosed 10/09 and the sold it for $360,000 in 12/09, a month ago my lender send me 1099-A form on box 4 the fair market value of my property was only $25K.Am I liable for repayment of debt? or cancellation of debt. Please I need your advise.
Thank you,
Angelo O
Welcome Angelo,
As the property has been foreclosed by the lender, you are liable for the payment of deficient amount resulting from the sale of the property. However, if the lender forgives the dues and sends you a 1099-c form, then you won't be liable to pay off the deficient balance. You need to speak to your lender and check out whether or not the deficient balance would be forgiven.
As the property has been foreclosed by the lender, you are liable for the payment of deficient amount resulting from the sale of the property. However, if the lender forgives the dues and sends you a 1099-c form, then you won't be liable to pay off the deficient balance. You need to speak to your lender and check out whether or not the deficient balance would be forgiven.
I did DIL in 1999 that states "THIS DEED IS AN ABSOLUTE CONVEYANCE, the consideration therefore being the satisfaction of all obligations secured by the Deed of Trust executed by: says my name" what happened was I got a letter from the IRS in May 2008 saying Citimortgage had sent them a 1099c for the year 2006 with a cancelled debt of $36,638.00 and are taxing me for it, my question is can they do that ? Is this correct ? It took them 7 yrs to send this 1099c to IRS (I never received one) when records show the house had sold in July 1999, Is there a statues of limitations?
Hi Allbatwings!
Welcome to forums!
After a deed in lieu, the lender forgives the deficient balance resulting from the sale of the property and sends a 1099c to the borrower. The forgiven amount is considered as the income of the borrower and thus, the IRS can charge taxes on that amount. As the lender has send the 1099c form after such a long time, I would suggest you to have a word with your attorney and then take a decision.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
After a deed in lieu, the lender forgives the deficient balance resulting from the sale of the property and sends a 1099c to the borrower. The forgiven amount is considered as the income of the borrower and thus, the IRS can charge taxes on that amount. As the lender has send the 1099c form after such a long time, I would suggest you to have a word with your attorney and then take a decision.
Feel free to ask if you've further queries.
Sussane
i filed chapter 7 bankruptcy in 2009 my mortgage was included, i chose to stay in my home but did not reafirm the dept. i paid 160,000.00 for my condo which is now worth 48,000.00. now i am going to have to foreclose on my homw. will i have to pay state taxes and if so about how much
Hi annie,
As you did not reaffirm your debts, the lender will not come after you for the deficient amount resulting from the sale of the property. However, this forgiven balance will be considered as your income and the IRS may charge taxes on that amount.
Thanks
As you did not reaffirm your debts, the lender will not come after you for the deficient amount resulting from the sale of the property. However, this forgiven balance will be considered as your income and the IRS may charge taxes on that amount.
Thanks
I am the co-owner of a property that has gone into foreclosure. I haven't lived in the property for a year and a half, however the other owner remained in the home. The other owner has now filed Chapter 7 Bancruptcy and included the house. I want to do a Deed in Lieu b/c the property is still in my name and I cannot pay for it. What do I need to do, and what effect will it have on me.