Home Selling in 94533>Question Details

Hk, Home Buyer in fairfied ca

if lender sell my house less amout than what i own do i have to pay taxes

Asked by Hk, fairfied ca Mon Aug 11, 2008

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There are two possible ways a bank might handle the shortage:

1.) File for a deficeincy judgment gainst you for the amount of the loss. Some states bar deficeincy judgments; I don't know if California is one of them.

or

2.) Forgive the loss and report it to the IRS as taxable income.

If option 2 is excercised, you may be able to avoid income tax on the forgiven debt if it was used to buy or substantially improve your home. Here is a link to IRS info about avoiding the tax:

http://www.irs.gov/individuals/article/0,,id=179414,00.html
1 vote Thank Flag Link Tue Aug 12, 2008
Very good answers below, particularly the one that suggests talking with a CPA.
The truth is that you have an obligation. If you want to sell your home for less than your owe, you still owe the money. A lender may allow you to sell for less than you owe, however you will receive a 1099 for the difference, which will include closing costs.

California has special laws regarding this, so talking with a CPA is important. And if you need legal advice, talk with an attorney.
0 votes Thank Flag Link Fri Jun 25, 2010
Keith Sorem, Real Estate Pro in Glendale, CA
MVP'08
Contact
NO,
IT MAY BE REPORTED ON A 1099 FOR TAX PURPOSES.

BUT IF YOU CLAIM A LOSS

YOU SHOULD BE ABLE TO 0 OUT YOUR

GAIN TO 0

MEANING YOU OWE 0.

EDUCATE YOUR SELF

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
http://www.irs.gov/individuals/article/0,,id=179414,00.html
http://WWW.STOPMYFORECLOSUREONLINE.COM
0 votes Thank Flag Link Fri Jun 25, 2010
You need to consult a real estate attorney and a CPA for this. These questions are just outside the scope of what we can answer. We cannot give legal advice. I would begin with my CPA if I were you.
0 votes Thank Flag Link Tue Aug 12, 2008
As I understand it, if it not agreed upon in writing that you will not pay the deficient amount, you will be 1099 on that amount of the loss. Which totally sucks!!! Unless Big Brother steps in and does something for the 100's of thousands of people who are in this predicament. The banks dont loose because they right it off, The Govt doesnt looks because of the taxes, guess who looses.....

So write your congressman and tell em to do something and pass a bill to diminish or forgive the deficient balance. For now... the consumer is on the hook, as always...

I have clients, family members, collegues all asking the same questions...

If possible, negotiate the bank to forgive the dfference.. You dont get what you dont ask for but its highly unlikley...

We have come up with some solid solutions.. drop me an email if you need more infor..This board will provide you with a smorgasborg of assistance.

Good Luck..
Web Reference: http://www.renter2buyer.net
0 votes Thank Flag Link Mon Aug 11, 2008
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