Posted: Sun May 20, 2007 8:20 pm Post subject: Tax ramification of a deed in leiu of foreclosure?
Hi,
What is the tax ramification (by the IRS the state o CA) for a deed in leiu of foreclosure? Thanks _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant
Posted: Sun May 20, 2007 9:33 pm Post subject: RE:
Welcome Jolly,
Once a deed in lieu foreclosure is accepted, the lender takes over the borrower's property and sells it off to get back the unpaid debt. But if the home sells at a price lower than the unpaid debt, then the deficit is the debt forgiven by the lender. This implies that the borrower need not pay for it and legally the lender cannot claim it. This unpaid debt becomes the basis of the tax that the borrower has to pay on account of the forgiven debt.
Just refer to our section on Deed-in-lieu to know more about the tax ramifications.
IF loan balance is more than property's sale value & lender forgives the difference amount then this forgiven debt becomes taxable income for you (also called cancellation of debt income).
Lender then reports the forgiven debt to IRS and provides the borrower 1099-C form
That's right brack. If the taxes on the cancelled debt are not paid on time, the Internal Revenue service (IRS) may place a federal tax lien on your property.
Posted: Tue Jan 22, 2008 9:03 pm Post subject: property of deceased person
What happens in the case of a deceased person's estate when the property is given up in a Deed in Lieu of foreclosure and there are no funds left in the estate.
The estate of a person includes real property as well as other assets. When you say, there are no funds in the estate, do you mean there are no assets? your question isn't clear, please clarify. _________________ Procrastination is the enemy of your financial sucess
Posted: Wed Jan 23, 2008 12:40 am Post subject: RE: tax impact for deed-in-lieu if owner is deceased
Hi Jc,
If a deceased person's estate is given away through a deed-in-lieu, the estate taxes to be paid by the heirs will depend upon the value of the estate minus the home value. The estate value will include assets such as insurance policies, etc.
However, as per the Mortgage Tax Relief Act, one need not pay tax on forgiven debt. Please check out a previous discussion on Tax break for debt forgiveness .
adonis
