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

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Icon Mini Profile ambers7144




Joined: 21 Feb 2008

Posts: 1

1.04 Dollars($)
PostPosted: Thu Feb 21, 2008 10:00 pm    Post subject: If i do a deed of lieu in 2008 will i have to pay irs

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
Icon Mini Profile larry




Joined: 27 Jun 2007

Posts: 3328

474.61 Dollars($)
PostPosted: Thu May 22, 2008 11:11 pm    Post subject:

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
Icon Mini Profile Samantha
Samantha
Community Mentor
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Joined: 16 Sep 2005

Posts: 1606
Location: MASSACHUSETTS
150.38 Dollars($)
PostPosted: Fri May 23, 2008 4:33 am    Post subject: RE: dil vs foreclosure - tax consequences

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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