Posted on: 31st Dec, 2009 08:16 am
I bought a vacant lot in 2005 for 150,000 with $30,000 down and a 2year interest only note. Plans were to hold the lot for a year and sell. The note was modified in 2007 and the land went into foreclosure May 2008. The land was bought by the holding bank for 52,000. My husband and I were pursued for the deficiency. In another stupid move, we drained the remnants of his 401K and the bank accepted $50,000 as payment in full. How can we minimize the demage of an additional 78,000 in income (30,000 or so withheld intaxes) that went completely to satisfy the deficiency situation?
Hi mksw,
If your lender has forgiven the deficient balance of $78,000, then it will be considered as your income and you'll be liable for taxes. However, the the Mortgage Debt Relief Act allows taxpayers to exclude income from the discharge of debt on their primary residence. You should contact your attorney and check out your state laws. Any debt which is reduced or forgiven due to a foreclosure qualifies for the relief. As per your state laws, you may qualify for the exclusion of this forgiven amount and thus you won't have to pay taxes for it.
Thanks
If your lender has forgiven the deficient balance of $78,000, then it will be considered as your income and you'll be liable for taxes. However, the the Mortgage Debt Relief Act allows taxpayers to exclude income from the discharge of debt on their primary residence. You should contact your attorney and check out your state laws. Any debt which is reduced or forgiven due to a foreclosure qualifies for the relief. As per your state laws, you may qualify for the exclusion of this forgiven amount and thus you won't have to pay taxes for it.
Thanks
pl contact attorney to know tax law applicable in your state