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
can you tell me which would be a better route for us to take. last year we had to move out of state for work as my husband was forced to quit his job. we moved and now because of budget cuts i am losing my job. we are two months behind on mortgage for our home in the other state and can not afford to pay for the home. which would be better for us to do? a foreclosure, bankruptcy or a deed in lieu of foreclosure?
Hi sls,
In my opinion, it will be better to go for a deed in lieu of foreclosure as you won't be liable for the deficient amount resulting from the sale of the property. However, your credit scores will go down by 250 points.
Thanks
In my opinion, it will be better to go for a deed in lieu of foreclosure as you won't be liable for the deficient amount resulting from the sale of the property. However, your credit scores will go down by 250 points.
Thanks
if i do the deed in lieu am i responsible for overdue maintence costs or common charges?
Hi Guest!
Welcome to forums!
After a deed in lieu of foreclosure, you'll be liable for paying the past due maintenance costs but you won't be liable for paying the deficient balance resulting from the property sale.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
After a deed in lieu of foreclosure, you'll be liable for paying the past due maintenance costs but you won't be liable for paying the deficient balance resulting from the property sale.
Feel free to ask if you've further queries.
Sussane
where do I enter the figures on the 1099-A?? On the 1040
I need to know where the figures on the 1099A should be placed on the 1040??
Do I pay taxes on a 1099a that was used for an investment property.(Rental).Loan amount exceeds FMV by 100 k
Hi Guest and Taxman,
You should contact a tax adviser and take his/her opinion in filling out the tax documents. He or she will be able to guide you in this matter.
Welcome Ron,
If your lender has foreclosed the property and you were not liable for paying off the deficient balance resulting from the property sale, then you'll be liable for paying taxes on the forgiven debt.
You should contact a tax adviser and take his/her opinion in filling out the tax documents. He or she will be able to guide you in this matter.
Welcome Ron,
If your lender has foreclosed the property and you were not liable for paying off the deficient balance resulting from the property sale, then you'll be liable for paying taxes on the forgiven debt.
hi jessica do i need to fill out 1040 schedule d my bal was more than market value on the 1099a and condo was surrendered thru bankruptcy before foreclosure
You will have to contact a CPA and he or she will guide you whether or not you be liable for filing the 1040 form.
I'm confused. We had a primary property in Colorado, had to move to rental in another state (offered a position elsewhere), MN. Received a 1099A, and don't know how to file taxes this year. Will H & R Block know how to deal with this, or do I need to see a lawyer? The FMV is higher than the balance. Is the entire balance taxable, or just the difference between FMV and the balance?
Am I right that the government can treat it as income, tax it, but it's not actually forgiven and the company comes after me? Isn't that a double whammy? How do I claim the Mortgage Forgiveness Debt Relief Act of 2007? Do I do this on the tax return? Can H and R or similar take care of this?
Am I right that the government can treat it as income, tax it, but it's not actually forgiven and the company comes after me? Isn't that a double whammy? How do I claim the Mortgage Forgiveness Debt Relief Act of 2007? Do I do this on the tax return? Can H and R or similar take care of this?
Hi Jack,
As the matter deals with taxes, it is better to contact a CPA in this regard. The CPA will look into the matter and let you know what you need to do in this case. The deficient balance, if forgiven by the lender, will be considered as your taxable income by the IRS. However, as it was your primary property, you will be able to claim the benefit of Mortgage Forgiveness Debt Relief Act.
Take care
As the matter deals with taxes, it is better to contact a CPA in this regard. The CPA will look into the matter and let you know what you need to do in this case. The deficient balance, if forgiven by the lender, will be considered as your taxable income by the IRS. However, as it was your primary property, you will be able to claim the benefit of Mortgage Forgiveness Debt Relief Act.
Take care
I received 1099 with my fathers social security number on it. We have the same first and last name. He has been deceased since 2007 but I was paying his bill until a year ago to the credit card company that sent the 1099. Will I eventually have to pay the IRS for taxes due on this 1099?
Hi bluedream!
Welcome to forums!
If you're not the concerned person, then you won't be liable for paying off the taxes to the IRS. Contact a CPA in this matter and take his opinion in this regard.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
If you're not the concerned person, then you won't be liable for paying off the taxes to the IRS. Contact a CPA in this matter and take his opinion in this regard.
Feel free to ask if you've further queries.
Sussane
We purchased a home in Canton , Ga in February 2007. We were relocated to Tampa in 2009 where we are currently renting. We are in the process of shortselling our house in Canton. Would we qualify for the Mortgage Debt Relief Act? Thanks