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findleydl · Joined: 18 Aug 2010 Posts: 1 1.40 Dollars($)

Can inherited property count as a primary residence, and deed-in-lieu/short sale be shielded from tax?

I live and own a home in Pennsylvania. I became a co-owner and a co-signer on my mother's condo in Florida, which she (we) bought in 2002. She died in 2009. I've been mostly unsuccessful in renting it and can't afford the mortgage any more. It's been occupied only 3 months out of the last 14, and not by me. It's been on the market for 5 months. If I do a short sale or deed in lieu, will the fact that this was my mother's principal residence (but not mine) shelter me from tax? Luckily, it would only be about $10,000 federal tax, but that's still a lot of money.

smithsussane · Posted: Wed Aug 18, 2010 8:56 pm Post subject:

Hi findleydl!

Welcome to forums!

The property was your mother's principal residence but not yours. Thus, if your go for a deed in lieu of foreclosure, you would be liable for paying the taxes if the mortgage dues are forgiven by the lender. The forgiven balance would be considered as your income by the IRS.

Feel free to ask if you've further queries.

Sussane

Guest

Will I be stuck with taxes on the difference between sale price and principal due if I do a short sale? On deed in lieu, am I taxable only for the overdue payments that are forgiven? It would be the difference between $33,000 and $4000.

adonis · Posted: Thu Aug 19, 2010 11:47 pm Post subject:

Welcome findleydl,

You will be liable for the deficient balance resulting from the short sale of the property. If the lender forgives the balance amount, then as per the Mortgage Debt Relief Act, you may not have to pay any taxes for the forgiven dues.

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Is short sale of an inherited condo taxable