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My House was sold in an auction on August for 175k less, do I have to pay taxes for that?, what’s happend to home owner’s after auctions?

3 Thoughts on Do I have to pay any Tax, federal taxes or any penalty for my foreclosure House in California?
  1. Reply
    November 29, 2012 at 1:42 pm

    Assuming that you lost money on the deal, or that the house was your primary residence and you hadn’t taken the homeowners exemption for at least two years, you’re probably OK on the sale of the house.

    (You should still talk to a tax person about it, as I can think of at least a couple of possible scenarios where that wouldn’t be so.)

    Where you’re likely to end up with tax problems is if any portion of your mortgage was forgiven by the bank. If the bank just took what they could get for the house and canceled the rest of the loan, you could be stuck for income tax on whatever amount that the bank canceled.

    This is called “adding insult to injury”. Talk to a tax expert. Often you can get “Volunteer Income Tax Assistance” free of charge if you cannot afford to hire a CPA.

  2. Reply
    November 29, 2012 at 2:05 pm

    Yes you would be liable for the debt cancellation income. You will be receiving a 1099 from the bank. You will be responsible for the taxes but then I am sure that you would have lotsa expenses related to the property and foreclosure fees, legal fees etc.

  3. Reply
    November 29, 2012 at 2:58 pm

    No, that’s your loss and their loss. There are no taxes due when you have not received income from any source. When houses sell for less than what you owe, and you receive nothing from the proceeds, then there are no income taxes to pay.

    What happens to homeowners? Most of them move on with their lives, renting apartments or houses until their credit recovers so they can purchase a new house. Just don’t make the same mistakes again — have an emergency fund to pay the bills for a few months if you run into trouble, put down money on the house to preserve as much equity as possible.

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