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joskimad · Joined: 23 Feb 2008 Posts: 1 1.53 Dollars($)

was paying over 4000 a month in new jersey after my mortgage reset and my income dropped dramatically over the last 2 years. I called my bank for help but was told they wouldn't speak to me unless i was late. I called 5 times to no avail. I have 4 kids and a wife whom depend on me and all i saw was disaster coming as i was going through my savings to pay for my house. I had to take action. while still current i got a new job in florida and purchased a smaller more affordable home there. I am currently now 2 months behind on my house in new jersey and the house is for sale with a real estate broker whom does short sales. I am willing to let the house go into foreclosure if the house does not sell and face the consequences as at least now my family is safe and we are still home owners. My question is if the house is foreclosed on and there is a short fall of say 50,000 dollars am i liable for a capital gain. I read the relief act and it appears that i qualify. Florida has tremendous asset protection laws so im not concerned about a lawsuit.

girlndebt · Joined: 02 Feb 2008 Posts: 11 5.77 Dollars($)

Welcome to Florida! I am here in South Florida. Lately everyone I talk to is moving out of here and not here! Confused

It is beautiful here but the cost of living is very high. I am not sure how expensive New Jersey is but you will notice how high our property insurance and property taxes are...if you haven't already.

As far as the tax implications after a foreclosure or short sale, they can be VERY tricky. I had to sell my home through a short sale last year and the house sold for A LOT less than what I owed. My bank was like yours-refused to talk to me until I was late. Well once I was late, things only got worse. Hopefully you can get some kind of decent offer and not have to go through a foreclosure.

My bank never sent me a 1099 and I was told they may have just "eaten" the forgiven amount. Every situation is different. There is such a thing as insolvency. I am not sure if you qualify or not but you can look into that. Have you read about the Mortgage Forgiveness Debt Relief Act of 2007?

Good luck! I hope you and your family like Florida. It is a change from NJ. It is beautiful here and you have plenty of beaches and sun. The one thing here you wont see is...snow. Laughing

gmakerley · Posted: Tue Feb 26, 2008 8:46 am Post subject:

girlndebt, that was a nice post, and i'm not even talking about your florid style of prose.

it's nice to see someone who has experience with a situation sharing. your having been through a short sale and what transpired with that situation is helpful to know for others.

with foreclosures and defaults becoming a national epidemic, shared information becomes more relevant and important.

Guest

No, you need not pay capital gains tax on short sale. This is because short sale does not involve gains; rather it brings about loss, that is the homeowner owes more than the home's value and hence there is no capital gains tax. However, the homeowner can offset this loss along with the capital gains on any investments and then if there is net gain, then he'll have to pay tax on the net gain.

Now, if there is no gain but capital loss, then one can offset capital loss against $3000 ($1500 for married couples filing separately) of ordinary income on a yearly basis. If the loss is higher than $3000, then the extra amount is carried forward to the forthcoming years and offset against $3000 of income as usual.

larry · Joined: 27 Jun 2007 Posts: 3322 474.67 Dollars($)

Hi Joskimad,

If you gain some money it will not considered as a short sale. Is it that you will gain after selling the house? Then it will be considered as just a sale.

If you sell the property less than the amount what you owe to the lender then it is considered as Short sale.

I think you should not let it go for foreclosure as foreclosure will then have a huge negative effect on your credit. Try to sale the house ASAP and pay your lender off. If you gain any money then you may have to pay tax on it but the annual exemption limit on property gain tax is $12000. If you gain anything more than that you will have to pay tax on it.

Feel free to ask if you have any further questions.

Best of luck,
Larry

adonis · Posted: Thu Feb 28, 2008 1:49 am Post subject:

Larry, the $12,000 exemption limit is for gift tax. For capital gains tax, the limit is $250,000 for individual taxpayer.

Niicss · Posted: Sat Apr 12, 2008 4:50 am Post subject:

Hi joskimad,

you will have $50,000 short fall to pay the lender after foreclosure right! So he files a deficiency judgment and you will have to pay then it to the lender. In case the lender forgives the due debt then it will considered as your income and you need to pay tax on it. But you need not to pay tax on it because of the Tax Break for Mortgage Debt Forgiveness.

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What can happen to me if foreclosure occurs??