Posted on: 20th Jan, 2008 07:43 am
I went through the deed in lieu process on my home instead of foreclosing. I just received a 1099-A form. In box 2 the balanace is $73,359.79 and in box 4 the amount is $73,000. Box 5 is check "yes" that I am personally liable for repayment. My understaing was that in doing the deed in lieu I was not liable for repayment. Should I get a lawyer?
How's this possible? I too knew that when one goes for a deed-in-lieu, he need no pay for the deficiency, if any.
Hi Terry,
Welcome to our community forums.
The Form 1099-A is given to those who have handed over their property to the lender. If the lender/bank has no option other than sell property to recover the unpaid debt, then he has to provide the homeowner with a Form 1099-A. On account of this, homeowner may get any part of the proceeds which exceeds the balance owed. And, this excess amount needs to be reported on the form that you've received.
I think the balance is specified in the form for the sake of making all parties aware of it. The box 5 actually asks you to mention where you are personally liable for the repayment since the time the debt was created. And, it should be marked "yes" because you are indeed responsible for the repayment. However, this doesn't mean that you have to pay for the deficiency if you hand over the property through deed-in-lieu.
I hope this is clear to you.
If you have any further queries, please don't hesitate to ask.
Regards,
Jessica
Welcome to our community forums.
The Form 1099-A is given to those who have handed over their property to the lender. If the lender/bank has no option other than sell property to recover the unpaid debt, then he has to provide the homeowner with a Form 1099-A. On account of this, homeowner may get any part of the proceeds which exceeds the balance owed. And, this excess amount needs to be reported on the form that you've received.
I think the balance is specified in the form for the sake of making all parties aware of it. The box 5 actually asks you to mention where you are personally liable for the repayment since the time the debt was created. And, it should be marked "yes" because you are indeed responsible for the repayment. However, this doesn't mean that you have to pay for the deficiency if you hand over the property through deed-in-lieu.
I hope this is clear to you.
If you have any further queries, please don't hesitate to ask.
Regards,
Jessica
You have to report that amount as income on your tax returns. I don't agree that creditors should be allowed to do this but they are, unfortunately.
Contact a tax advisor. I believe the tax exceptions where made into law from last year but I am not an expert in this area. If they where and you qualify you may not have to pay the tax. The lender is still required by law to report the deficiency however.
Please come back and let us know what your tax advisor says.
Please come back and let us know what your tax advisor says.
if the fair market value on the 1099-a is less than the balance in box 2, is that reportable income on the tax return? i also did a deed in lieu of foreclosure. i was under the impression that any difference would not be treated as income to me.
Hi Diane,
The lender probably just didn't tell you about it since they do not need to by law. An accountant or tax professional should be able to answer this question with certainty for you.
The lender probably just didn't tell you about it since they do not need to by law. An accountant or tax professional should be able to answer this question with certainty for you.
There are definitely tax consequences when involved with a deed in lieu. You should always seek advise before you perform one, but if it is too late- make sure to talk with one now to avoid further issues.
Does the foreclosure process also generate a form 1099-A to be sent? It sounds to me that a deed in lieu of foreclosure doesn't really release you from tax consequences like I thought. Or maybe it's that you don't have to pay the money back to the lender, but the IRS is a whole different thing. What are the consequences between the lender and borrower if a foreclosure happens? Does the borrower have to claim the whole amount as income?
Hi Diane,
Welcome to the forum.
If the lender approves you for Deed in lieu then you need not to pay the deficiency that you owe to the lender. But it will be considered as your income and you will have to pay tax on that amount to IRS.
But in the process of foreclosure the deficiency judgment does not usually exempted. You will have to pay the amount to the lender.
Hope it is clear to you.
Feel free to ask if you have any further questions.
Best of Luck.
Larry
Welcome to the forum.
If the lender approves you for Deed in lieu then you need not to pay the deficiency that you owe to the lender. But it will be considered as your income and you will have to pay tax on that amount to IRS.
But in the process of foreclosure the deficiency judgment does not usually exempted. You will have to pay the amount to the lender.
Hope it is clear to you.
Feel free to ask if you have any further questions.
Best of Luck.
Larry
What are the tax consequences from a regular foreclosure? We rented our home as a land contract and have documents to prove it. Can that help us to get out of paying the tax? I am understanding that the amount that I have to claim is the difference between the fair market value and the balance left on the loan. Is that correct?
Hi Diane,
Welcome back.
If you profit say for $25000 after foreclosure. Then you will have to pay tax on that amount.
And then again if the sale price is lesser than what you owe for $ 40K and say you can't pay it. Although the lender will not exempts it generally but if exempts it, then you will have to pay tax on that amount.
The law of Tax is vary complicated and varies with circumstances. So a through examination by a tax professional is required.
How much do you owe to the lender? What is the appraised value of your house?
Thanks.
Welcome back.
If you profit say for $25000 after foreclosure. Then you will have to pay tax on that amount.
And then again if the sale price is lesser than what you owe for $ 40K and say you can't pay it. Although the lender will not exempts it generally but if exempts it, then you will have to pay tax on that amount.
The law of Tax is vary complicated and varies with circumstances. So a through examination by a tax professional is required.
How much do you owe to the lender? What is the appraised value of your house?
Thanks.
On the 1099-A that I received, the fair market value was $85,000. The balance on the load is 104,000. Do I have to claim the difference? Does that go on a Schedule D? Thanks.
Hi Diane,
Under the Mortgage Debt Forgiveness Relief Act, an individual need not pay tax on cancelled debt, that is, the difference between the loan balance and the sale price of your home. Know more... . So, don't worry, you need not claim it on your tax return.
As Jessica has said in her post above, the form is issued to the borrower just to make all parties aware of it and not for retrieving the canceled debt or making the borrower pay any tax on it. The law rules out such possibility. So, I don't think you should include it in Schedule D.
Hope this helps...
God bless you.
Samantha
Under the Mortgage Debt Forgiveness Relief Act, an individual need not pay tax on cancelled debt, that is, the difference between the loan balance and the sale price of your home. Know more... . So, don't worry, you need not claim it on your tax return.
As Jessica has said in her post above, the form is issued to the borrower just to make all parties aware of it and not for retrieving the canceled debt or making the borrower pay any tax on it. The law rules out such possibility. So, I don't think you should include it in Schedule D.
Hope this helps...
God bless you.
Samantha
I am so confused on what to believe now. Now, I am being told that the Debt Forgiveness Relief Act says I don't have to claim the difference on my taxes. Can anyone else confirm this?
Diane,
Here is some information I copied from the government website. Below the information is a link to the site should you wish to read through it. On Dec 21, 2007 the Mortgage Debt Foregiveness Act was signed. It applies to situations that occured after January 1, 2007 (which I assume yours did since you have a current 1099.)
-----------------------
12/20/2007--Public Law.
(This measure has not been amended since it was passed by the Senate on December 14, 2007. The summary of that version is repeated here.)
Mortgage Forgiveness Debt Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2010, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness. Reduces the basis of a principal residence by the amount of discharged indebtedness excluded from gross income. Disallows an exclusion for a discharge of indebtedness on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer. Sets forth rules for determining the allowable amount of the exclusion for taxpayers with nonqualifying indebtedness and taxpayers who are insolvent
---------------------------------
The link is:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648&tab=summary
Please let us know if you have any other questions.
Here is some information I copied from the government website. Below the information is a link to the site should you wish to read through it. On Dec 21, 2007 the Mortgage Debt Foregiveness Act was signed. It applies to situations that occured after January 1, 2007 (which I assume yours did since you have a current 1099.)
-----------------------
12/20/2007--Public Law.
(This measure has not been amended since it was passed by the Senate on December 14, 2007. The summary of that version is repeated here.)
Mortgage Forgiveness Debt Relief Act of 2007 - Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2010, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness. Reduces the basis of a principal residence by the amount of discharged indebtedness excluded from gross income. Disallows an exclusion for a discharge of indebtedness on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer. Sets forth rules for determining the allowable amount of the exclusion for taxpayers with nonqualifying indebtedness and taxpayers who are insolvent
---------------------------------
The link is:
http://www.govtrack.us/congress/bill.xpd?bill=h110-3648&tab=summary
Please let us know if you have any other questions.
