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I can’t find anything about this situation.
My house has a 1st and 2nd mortgage (Home Equity Loan). The Home Equity loan was used for repairs & updates on the house so I’ve been claiming it all along on my taxes (the interest payments).
The house is going into foreclosure. The main mortgage is FHA insured, but the 2nd mortgage is not. I make just a little too much to be eligible for Chapter 7 Bankruptcy, which is the only way to totally discharge debt.
I could do Chapter 13 (or maybe it is 11), but that is just restructuring and paying back what is owed. The 2nd Mortgage bank is willing to work with me on lower payments and longer payback time and they know the house is foreclosing – which would at least avoid lawyers fees for them & me.
I’m just wondering if anyone thinks there is any chance at all that those payments could remain tax deductible (the interest portion) after the house has foreclosed and I am no longer the owner of it. The loan WAS for my home and the funds WERE used in accordance to the rules which have made it eligible for tax deductibility.
What are your thoughts? Am I dreamin’?

1 Thought on Tax Pro Opinion – Foreclosure/2nd Mortgage Issue?
  1. Reply
    May 17, 2011 at 1:04 am

    Dear nova: See IRS Pub 4681 with 24 pages of relevant info concerning the new tax law for “Foreclosures, Repossessions and Abandonment.”

    This advice was prepared based on our understanding of the tax law in effect at the time it was written as it applies to the facts that you provided. Click on my profile to read more. Errol Quinn Enrolled Agent Master Tax Advisor

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