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 live in South Carolina, payments on my house went up to the point that me and my wife cannot afford anymore. Payments went up and paycheck didnt! I called the lender and they pretty much wrote me off! I asked them for help but nothing! We are not late on payments yet! But soon will be. Anyone know about South Carolina laws and if we do a deed in lue what reprocussions we are faceing? Again i live in South Carolina. Any help would be great!
Hey KevKev,
You can apply for a deed in lieu of foreclosure in order to get rid of the property. If the lender accepts the request, then you won't have to pay off the balance dues resulting from the sale of the property. But your score would get reduced by 250 points and it would be mentioned in your credit report for 7 years.
You can apply for a deed in lieu of foreclosure in order to get rid of the property. If the lender accepts the request, then you won't have to pay off the balance dues resulting from the sale of the property. But your score would get reduced by 250 points and it would be mentioned in your credit report for 7 years.
I want to give back the lender my property, but want to be relieved of any past, present or future financial or legal obligations. What form should I use? and what will be the proper wording? Thank you for your valuable advise.
hi celia,
if you want to get rid of the property and the mortgage, then you will have to apply for a deed in lieu of foreclosure and surrender the property to the lender by using quit claim deed. you won't be liable for the deficient balance resulting from the sale of the property. but again, this would reduce your credit score by 250 points.
thanks
if you want to get rid of the property and the mortgage, then you will have to apply for a deed in lieu of foreclosure and surrender the property to the lender by using quit claim deed. you won't be liable for the deficient balance resulting from the sale of the property. but again, this would reduce your credit score by 250 points.
thanks
1099a or 1099c
Is there a irs form to cancell a 1099a
Is there a irs form to cancell a 1099a
What is the IRS form #>
What is the IRS form# to cancell the 1099A?
I don't think you would be able to cancel a 1099a form. It proves that your property was taken away by the lender. The dues were not forgiven, however. If the lender forgives the dues, then he would send you a 1099c form.
my house is currently in foreclosure but i have not lost it yet. my second mortgage has been charged off. i wanted to know do i have to pay taxes on this charged off account. or can i qualify for the mortgage debt relief?
Hi Johnson,
The concept of mortgage debt relief will come when the lender forgives your debt. Your second loan has been charged off and assigned to a collection agency. It hasn't been forgiven. You will have to negotiate with the collection agency and pay off the dues.
Thanks
The concept of mortgage debt relief will come when the lender forgives your debt. Your second loan has been charged off and assigned to a collection agency. It hasn't been forgiven. You will have to negotiate with the collection agency and pay off the dues.
Thanks
HELP!!! My situation is that the property was purchased in Feb 2006 for $615,000 The property was held for rent until March 2007 when I could not make the mortgage payments and the bank sent me a 1099A as follows: Box#1abandonment date 12/05/2007. Box2. Balance of Principal outstanding $484573.11 box4. FMV $433800.00. Box5 I am liable for debt. As I said before, I did not received the 1099C, but how can I calculate my taxable income and what is the IRC number that I should read? I am very confused and the accountant says I should not do anything with that form. My house has been foreclosed and sold by the bank already.
Dulce
Dulce
Hi Dulce,
Your mortgage balance was not forgiven by the lender and you were liable for the debt. That's the reason why you did not receive 1099c form. As the debt was not forgiven, you won't be liable for any taxes.
Thanks
Your mortgage balance was not forgiven by the lender and you were liable for the debt. That's the reason why you did not receive 1099c form. As the debt was not forgiven, you won't be liable for any taxes.
Thanks
Hello, What about the escrow on a property that has been gone thru Deed in Lieu off. What happens to that Escrow money. does it go back to the borrower? thanks
Welcome Marisol,
The payments in the escrow account will be used to pay off the property taxes and insurance payments. Once the property is sold off, if there is an excess amount, it would be returned back to you.
The payments in the escrow account will be used to pay off the property taxes and insurance payments. Once the property is sold off, if there is an excess amount, it would be returned back to you.
Hi! My wife and I bought a house in 2006 and we filed BK Chapter 7 in 2009 and included both primary and secondary mortgages. The Chapter 7 has been discharged and the bank has still not foreclosed. A month ago they called me and told me they would give me $4,000 to do a Deed in Lieu or I can wait until November or December and they would foreclose. Should I consider the Deed in Lieu and if so, what should my concerns be?
Thanks
Thanks