Posted on: 02nd Feb, 2010 08:27 pm
In 2010 are we going to have to pay taxes on property that forecloses or short sale or deed in leu, due to being underwater. Primary residance, lived more than 2 year and under 200K?
How much difference is there in what happens to credit with foreclose vs short sale vs deed in leu?
How much difference is there in what happens to credit with foreclose vs short sale vs deed in leu?
Hi hhh,
If your property is foreclosed or short sold or if you do a deed in lieu (DIL) on the property and there is deficiency, you will be liable to pay taxes on this amount. However, if the property was used as a primary residence, you can claim exemption from taxes under the Mortgage Forgiveness Debt Relief Act of 2007, which is applicable to debts cancelled in the years 2007 through 2012.
In terms of the effect on credit scores, a short sale is a better option than a foreclosure or a deed in lieu. A short sale affects your credit by almost 75 points, while a deed in lieu or a foreclosure drops your scores by almost 250 points.
If your property is foreclosed or short sold or if you do a deed in lieu (DIL) on the property and there is deficiency, you will be liable to pay taxes on this amount. However, if the property was used as a primary residence, you can claim exemption from taxes under the Mortgage Forgiveness Debt Relief Act of 2007, which is applicable to debts cancelled in the years 2007 through 2012.
In terms of the effect on credit scores, a short sale is a better option than a foreclosure or a deed in lieu. A short sale affects your credit by almost 75 points, while a deed in lieu or a foreclosure drops your scores by almost 250 points.
Hi hhhstewardass,
If the lender forgives the deficient balance resulting from the short sale, foreclosure or a deed in lieu, then you will be liable to pay the taxes on that amount to the IRS as it would be considered as your income. If you are liable to pay the dues, then you will not have to pay taxes on that amount.
In a foreclosure and deed in lieu, your credit score would get lowered by 250 points. In case of short sale, your credit score would get lowered by 75-100 points.
If the lender forgives the deficient balance resulting from the short sale, foreclosure or a deed in lieu, then you will be liable to pay the taxes on that amount to the IRS as it would be considered as your income. If you are liable to pay the dues, then you will not have to pay taxes on that amount.
In a foreclosure and deed in lieu, your credit score would get lowered by 250 points. In case of short sale, your credit score would get lowered by 75-100 points.