Question : If I lose my home to foreclosure, will I have to pay taxes?
I purchased my home in April of 2006 for $675,000, no money down. It is now worth roughly $525,000 and I am facing foreclosure. I have not re-financed and my understanding is that I have a non-recourse loan. Will I owe the IRS taxes when my property is foreclosed on?
- asked by J William
All Answers:
Answer #1
When a preson defaults on a loan tha was notincluded in a bankruptcy the lender sends them aform 1099 for the amount of the loan that was notpaid back at the end of the years and this moneyis considered income.
- answered by SPIFIMAN1
Answer #2
If you are personally responsible for the debt,the bank will send you a 1099C for the amount ofthe loan the bank has cancelled. You will reportthat as "other income" on Line 21 of Form 1040.
- answered by ninasgramma
Answer #3
You should be OK.With a non-recourse loan, thereis no Cancelation of Debt income.Edit:....(foreveryone)There is a difference between howrecourse and non-recourse loans are treated in thecase of a foreclosure.With a Recourse Loan, thedebtor is liable for the remaining balance on aloan. If the mortgage company writes this balanceoff, it is considered income. With a non-recourseloan, the debtor is not liable for the shortageand, as such, there is no income to report.Mostmortgages are Recourse Loans with one majorexception: All first mortgages in California areby law Non-Recourse loans.
- answered by Wayne Z
Answer #4
MSN has a good article explaining all this today.
- answered by P. D.
Answer #5
You may not have to pay full taxes. Read this fromIRS:Is Cancellation of Debt income alwaystaxable?Not always. There are some exceptions. The most common situations when cancellation ofdebt income is not taxable involve:Bankruptcy:.... Insolvency: ..... Certain farm debts:.....Non-recourse loans: A non-recourse loan is a loanfor which the lender’s only remedy in case ofdefault is to repossess the property beingfinanced or used as collateral.That is, the lendercannot pursue you personally in case of default.Forgiveness of a non-recourse loan resulting froma foreclosure does not result in cancellation ofdebt income.However, it may result in other taxconsequences, as discussed in Question 3 below.
http://www.irs.gov/newsroom/article/0,,id=174034,00.html
- answered by MukatA
Answer #6
Wayne Z is absolutely correct. Non-recourse loansdo NOT trigger a COD situation as the taxpayer isNOT liable for the shortage!In unusual cases therecould be a taxable gain on sale -- foreclosuresare treated as sales by the IRS -- but from whatyou state that is not the case here so I'll skipthe gory details on that scenario.
- answered by bostonianinmo
Answer #7
The sale of your home is not the onlyalternative.There's a good chance I can help you,especially if whatever caused your hardship isresolved and you have more than three weeks beforethe property is going to be sold at foreclosureauction. You can look at staying in your homeuntil the market is better.It may not be as bad asyou think! If you want to stay in your home, thatmay actually be possible. If you don't want tostay, I can also help you with the sale bynegotiating a "short sale" with the lender, oroffering the lender your deed in lieu offoreclosure. If you will get in touch with medirectly with your phone number or email address,I'll send you some information.
- answered by Jeanne B
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