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I foreclosed on my home July of 2008, in California. I received a 1099-A which showed the amount i owed and the value of the home when it was foreclosed. The value of the home was much less than what I owed. Will I be responsible to pay taxes on the difference??

3 Thoughts on I foreclosed my home last year. Now what should I expect on my taxes?
  1. Reply
    November 9, 2012 at 3:39 pm

    yes you will

  2. Reply
    November 9, 2012 at 4:14 pm

    You need to seek out a tax professional – trust me on that!
    congress passed tax legislation that would allow you to forgive the taxability of the foreclosure. But a tax pro is your best bet to ensure you meet the forgiveness criteria.

    If you do not meet the criteria, you will be responsible for paying the difference between what they sell your home for and what you actually owed.
    Say you owed $ 100k and they sold it for $ 80k, you could be taxed on the $ 20k difference.
    They may not have sold your home yet, but you will eventually get a 1099-C form when they do.

    I’m a little fuzzy on this, but I think you would be in a taxable situation when you get the 1099-C, I think the 1099-A is just a reporting form that you need to hold onto.
    Again, I urge you to seek out a tax pro as I’ve not encountered this situation myself but I know a little about it as my house will be forclosing this year (2009) and I’ve been trying to read up on what will happen tax-wise.

  3. Reply
    November 9, 2012 at 4:30 pm

    Step 1: Was the loan a recourse loan or a non-recourse loan? A non-recourse loan means that the original loan documents said that the house was all the lender got if you defaulted. A recourse loan means that you were personally responsible for any amount you still owed after the house was auctioned. If you were responsible and the loan company forgave that debt, then you go to step 2. If your loan was a non-recourse loan, then they aren’t forgiving anything, and you don’t have to include anything in income.

    Step 2. If it was a recourse loan and you are liable for the difference between the loan and the auction price, THEN the mortgage forgiveness rules might apply. They apply if the loan was used SOLELY to buy, build or remodel the house. If you refinanced and used the money for a car or a vacation or to pay off other bills, then the act doesn’t apply. You’ll have to pay taxes on the forgiven amount.

    HOWEVER, if the money was used solely to pay for the house, then complete Form 982. The forgiven debt won’t be added to your income for tax purposes.

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