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ambers7144 · Joined: 21 Feb 2008 Posts: 1 1.04 Dollars($)

my husband and i have been asked to accept a deed of lieu instead of a foreclosure. what will our tax consequences be? we will be doing this in 2008. I lost my job and our income was cut in half. if we can't afford to keep the house we won't be able to pay extra taxes next year. Help! the home is in minnesota

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

Hi ambers,

Welcome to the forum.

If the lender accepts deed in lieu of foreclosure then you need not to pay tax to IRS on the forgiven debt because of the "Mortgage Debt Forgiveness Act". But you credit may have a negative effect and you may not get approved for new mortgage in coming 4 or 5 years.

Feel free to ask if you have any further questions.

Best of luck,
Larry

Samantha

Hi Ambers,

It's better to go for a deed-in-lieu (dil) than a foreclosure considering the negative effect on your credit report. I can understand how you're feeling right at this moment but please have patience and fight out this situation.

As for the taxes on the unpaid debt, well, if the unpaid debt is forgiven only then arises the question of paying tax. However, if you are in Minnesota, then I don't think you'll have to pay the tax.

I would like to know whether your lender has suggested any other option. I mean you'll lose the home if it's a dil. So, did you talk to the lender regarding some alternatives like a loan modification or so? Just check out some of the foreclosure prevention options before you ask the lender for an alternative.

Hope this helps...

God bless you.

Samantha

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If i do a deed of lieu in 2008 will i have to pay irs