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 Guest,
The other owner will have the rights to include the property in his bankruptcy filing as it will be considered as his assets. As he has already filed bankruptcy and included it in his filing, I don't think the lender will now go ahead with your deed in lieu of foreclosure request. You will only be able to proceed further with deed in lieu once the other owner is discharged of bankruptcy.
The other owner will have the rights to include the property in his bankruptcy filing as it will be considered as his assets. As he has already filed bankruptcy and included it in his filing, I don't think the lender will now go ahead with your deed in lieu of foreclosure request. You will only be able to proceed further with deed in lieu once the other owner is discharged of bankruptcy.
How do I file this and what can I expect as for as being taxed on the cancelled prt of the form?
Hi Bonnie,
You can check out the given page in order to know the information related to 1099c form:
http://www.irs.gov/instructions/i1099ac/ar02.html#d0e196
The canceled portion of the unpaid debt is treated as your income by the Internal Revenue Service. You'll be charged taxes for that unpaid debt amount.
Thanks
You can check out the given page in order to know the information related to 1099c form:
http://www.irs.gov/instructions/i1099ac/ar02.html#d0e196
The canceled portion of the unpaid debt is treated as your income by the Internal Revenue Service. You'll be charged taxes for that unpaid debt amount.
Thanks
Our primary residence was lost after a job loss. It was March 2009 balance was 225,000. I never received a Form 1099 nor made any money at all on the transaction. Does it qualify for the Debt forgiveness Tax relief? How do I account for it on the Tax this year?
Pls help
Freeman's
Pls help
Freeman's
Hi Freeman!
Welcome to forums!
If the lender has forgiven your debts, then you would receive a 1099c form from him. I don't think you would be able to claim the Debt Forgiveness Tax Relief unless you receive that form. I would suggest you to contact your lender and ask him to send you the form and then you would be able to claim the tax relief.
Feel free to as ask if you've further queries.
Sussane
Welcome to forums!
If the lender has forgiven your debts, then you would receive a 1099c form from him. I don't think you would be able to claim the Debt Forgiveness Tax Relief unless you receive that form. I would suggest you to contact your lender and ask him to send you the form and then you would be able to claim the tax relief.
Feel free to as ask if you've further queries.
Sussane
Hello,
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 bank sold it for $360K in 12/09. a month ago my lender send me 1099-C form cancellation of debt. On box 2 the amount of debt canceled was $244K. Am I debt free? 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 bank sold it for $360K in 12/09. a month ago my lender send me 1099-C form cancellation of debt. On box 2 the amount of debt canceled was $244K. Am I debt free? Please I need your advise.
Thank you,
Angelo O.
Hi Angelo,
As far as I can understand, your lender has forgiven the deficient balance resulting from the property sale. Yes, you are debt free now in regards to your foreclosed home.
As far as I can understand, your lender has forgiven the deficient balance resulting from the property sale. Yes, you are debt free now in regards to your foreclosed home.
WE filed for Bankruptcy in 08 also discharged same yr, never reaffirmed on our Mortgages, we tried a Loan Mod, Indymac our lender is like talking to a wall....they wont speak to because of the Bankruptcy, and we have Tried to contact the Bk Department,again no luck. We are out of Options.
to Short sell? Forclose? or Deed in lieu of FOrclosure????? and can we have it w/o Recourse? HELP!!!! This is all Confusing!!! We also live in Michigan, jobs here are scarce.
to Short sell? Forclose? or Deed in lieu of FOrclosure????? and can we have it w/o Recourse? HELP!!!! This is all Confusing!!! We also live in Michigan, jobs here are scarce.
My mother has passed away and her residence in CA is ready to be forclosed on. The bank accepted a shout sale, but the buyer dropped out because it took so long. Time is running out on short sale approval and I don't have another buyer yet. Should I try to do a DIL instead of forclosure if I can't short sale? Their is a purchase money mortgage existing on property as well as a 2nd. Please advise if their the first and second will be fully forgiven and if their are any tax ramifications as debtor is no longer with us.
Can a rental property be applicable in this deed-in-lieu of foreclosure?
Hi Spinner,
A rental property can go for deed in lieu of foreclosure. However, the deficient balance resulting from the sale of the property may not be forgiven.
Thanks
A rental property can go for deed in lieu of foreclosure. However, the deficient balance resulting from the sale of the property may not be forgiven.
Thanks
Hi, my wife and I got down payment assistance in Florida. We received 2 $10,000 loans to help with down payment from the local city and county governments respectively. We also have a $93000 loan from US Bank. If we do a short sale, deed in lieu of foreclosure, or just walk away and allow the foreclosure, what happens to those extra mortgages? What should we do?
I asked a question and noticed that many have responded the same day about their questions, can someone please help?
I have a VA loan and I have been asked to do a deed in lou on my primary property. Living in AZ do I need to pay IRS taxes etc. :roll: