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
Hello,
Recieved this form in the mail.I lost my job and could no longer afford my payments.My realiter tried to sell the home but the bank turned down several offers.they forclsed instead.Date of aquisition was 4/5/2010.The balance outstanding is $310,242.00 Fair market value is $358,543.00.What do I owe taxes on?? I do have reciepts of work done to the home but not $300,000.00 worth!We owned the home since 1996. HELP!
:(
Recieved this form in the mail.I lost my job and could no longer afford my payments.My realiter tried to sell the home but the bank turned down several offers.they forclsed instead.Date of aquisition was 4/5/2010.The balance outstanding is $310,242.00 Fair market value is $358,543.00.What do I owe taxes on?? I do have reciepts of work done to the home but not $300,000.00 worth!We owned the home since 1996. HELP!
:(
Hi Brian,
If the sale price of the property was equivalent to the Fair Market Value, then you won't be liable for paying anything to the lender. Rather the lender will pay you the excess amount and this excess amount will be considered as your income and you'll have to pay taxes for it.
Thanks
If the sale price of the property was equivalent to the Fair Market Value, then you won't be liable for paying anything to the lender. Rather the lender will pay you the excess amount and this excess amount will be considered as your income and you'll have to pay taxes for it.
Thanks
I received a 1099-A. The foreclosure was in 2010. The FMV was higher than what the value of this home is. Right now the FMV is probably closer to 115,000.00 not 165,000.00. The FMV is exactly what the loan balance was. Is this allowed by the lender?
Also, the home has not been resold. It was a HUD home. I thought the loan was guaranteed by HUD. IF so why am I getting a 1099-A?
Also, I went to IRS for information on how to file the 1099-A. It states I don't have to. There is no place only for the 1099-C form? I need to combine it with the 1099-C. That is the discharge from either the institution or the sale. Is this correct?
Also, the home has not been resold. It was a HUD home. I thought the loan was guaranteed by HUD. IF so why am I getting a 1099-A?
Also, I went to IRS for information on how to file the 1099-A. It states I don't have to. There is no place only for the 1099-C form? I need to combine it with the 1099-C. That is the discharge from either the institution or the sale. Is this correct?
Welcome graciesfire,
Your query has been replied to in the given page:
http://www.mortgagefit.com/budgeting-finance/about49265.html#201300
Take a look at it. Hope it helps you.
Your query has been replied to in the given page:
http://www.mortgagefit.com/budgeting-finance/about49265.html#201300
Take a look at it. Hope it helps you.
I live in Florida, I bought my condo which is my primary residence in 2005 for $215 with $70k down on a variable for 30yrs. Took out an Equity Line for $20k a couple years ago. (Both loans originated with World Savings, now owned by Wachovia)
My condo is now worth less than $140k on the market and I still owe on First $160k (original loan of $150k + negative amortization) and $20k from Equity Line. Total $180k
I couldn't afford to pay Property Taxes for 3 years ($7,000) so Wachovia paid them. Now they've added the property taxes debt to my bi-weekly payments and this has increased them to double the amount I've paying religiously and with no problem for the last 5 years.
I'm now in default since December 2010. Before I stopped paying my mortgage I tried to get a modification but was denied on the basis of not making enough. I've tried to make the bank understand to no avail, that I CANNOT afford to pay double what I was paying.
I don't want to lose my home because I invested $70k + lots of more $ on Special Assessments through the years.
I've finally decided to file Chapter 7 because about a year ago I stopped paying my credit cards after my income dropped drastically. I couldn't pay them anymore without asking for more loans from family and my circumstances have not improved as I hoped.
My lawyer is including my property in the bankruptcy but is not telling me what to expect when the bank forecloses. Will I owe the IRS for the difference between what the bank gets when they sell and the $180 I owe them? Or are both loans (First and Equity) discharged and forgiven in Chapter 7?
I thank you for your time.
Marianela
My condo is now worth less than $140k on the market and I still owe on First $160k (original loan of $150k + negative amortization) and $20k from Equity Line. Total $180k
I couldn't afford to pay Property Taxes for 3 years ($7,000) so Wachovia paid them. Now they've added the property taxes debt to my bi-weekly payments and this has increased them to double the amount I've paying religiously and with no problem for the last 5 years.
I'm now in default since December 2010. Before I stopped paying my mortgage I tried to get a modification but was denied on the basis of not making enough. I've tried to make the bank understand to no avail, that I CANNOT afford to pay double what I was paying.
I don't want to lose my home because I invested $70k + lots of more $ on Special Assessments through the years.
I've finally decided to file Chapter 7 because about a year ago I stopped paying my credit cards after my income dropped drastically. I couldn't pay them anymore without asking for more loans from family and my circumstances have not improved as I hoped.
My lawyer is including my property in the bankruptcy but is not telling me what to expect when the bank forecloses. Will I owe the IRS for the difference between what the bank gets when they sell and the $180 I owe them? Or are both loans (First and Equity) discharged and forgiven in Chapter 7?
I thank you for your time.
Marianela
Hi Marianela!
Welcome to forums!
If you let the bank foreclose the property, you won't owe the deficient balance to the lender. It will be forgiven as the property and the mortgage was included in your bankruptcy filing. The second lender also won't be able to come after you for any balance amount.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you let the bank foreclose the property, you won't owe the deficient balance to the lender. It will be forgiven as the property and the mortgage was included in your bankruptcy filing. The second lender also won't be able to come after you for any balance amount.
Feel free to ask if you've further queries.
Sussane
I am considering doing owner financing for some property I am selling. Do I have to prepare an annual 1098 Form for the buyers? Do I have to pay any capital gains tax on the amount I'm lending? And do I record the interest part of the payments as income? Thanks for any help!
I sold my home though a short sale in january of 2010. The loan was considered satisfied after the sale and they will not come after me for the amount of the loan that was forgiven. with this said, should i recieve any tax forms this year to report on my taxes?
Hi Guest,
You should contact a tax adviser in order to know whether or not you need to draft 1098 form for the buyers. You will be liable for capital gains taxes once you sell off the property and receive a profit from it.
Welcome dd,
As far as I can understand you will receive tax forms regarding that debt and you will have to report on your taxes.
You should contact a tax adviser in order to know whether or not you need to draft 1098 form for the buyers. You will be liable for capital gains taxes once you sell off the property and receive a profit from it.
Welcome dd,
As far as I can understand you will receive tax forms regarding that debt and you will have to report on your taxes.
my daughter is divorced and owns a house in NY. He ex husband lives in the house they owned when they were married in NJ. The mortgage is in her name because he couldnt get one and he is supposed to put the money in her account to pay the mortgage but he is always short and she cannot afford to keep doing this. Can she give the bank the deed without him agreeing? he is on the deed but not on the mortgage.
Hi pamsusie!
Welcome to forums!
Your daughter can give the deed to the lender but her ex-husband has to agree to it. Though his name is not on the mortgage, his name is on the property deed. This makes him one of the owners of the property. So, he will also have to agree to the surrender of the property.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
Your daughter can give the deed to the lender but her ex-husband has to agree to it. Though his name is not on the mortgage, his name is on the property deed. This makes him one of the owners of the property. So, he will also have to agree to the surrender of the property.
Feel free to ask if you've further queries.
Sussane
You can be excluded from paying taxes on a second home if you can prove your assets are less than the deficiency. The worksheet asks for IRA and 401K. I thought retirement funds did not count as assets. If my retirement funds are more than the deficiency then does this mean the exclusion will be denied???
Hi Mary,
Retirement accounts will not be considered into account when you're paying off your deficient balance. Also, retirement funds are exempt from any kind of garnishment.
Thanks
Retirement accounts will not be considered into account when you're paying off your deficient balance. Also, retirement funds are exempt from any kind of garnishment.
Thanks
Does this appy in Washington State
Welcome Guest,
As far as I know, the Mortgage Debt Relief Act is valid in Washington State.
As far as I know, the Mortgage Debt Relief Act is valid in Washington State.