Posted on: 04th Jul, 2008 03:51 am
How much tax will I have to pay if I owe $465, 000 and short sale proceeds will be around $320, 000? Will I have to pay the same amount of tax if I go for foreclosure? The loan is a purchase mortgage with the first worth $400,000 and 2nd $65,000. does the mortgage debt relief act apply to me? I haven't been out of work for 10 months and hence couldn't pay. I do have cc debts but I cannot pay all of them, only one having a low rate of interest. I have about $7000 in the bank and not much as assets just a car paid off and a life insurance policy. How do I deal with this situation?
Though I am not legal or tax expert, what I read from CA -mortgage debt related information from other sites:
=> In California for non-recourse mortgage loan (Purchase Money first), collateral is what due to the bank, in this case the house itself.
But if the loan is refinanced, also if equity line was taken out, and also in case of many second mortgages it will be considered recourse loan, where the borrower is responsible for the loan. In that case, even if bank waive the deficiency, though Fed has waived tax, CA still requires to pay tax.
Again, it is as far as I read from many real estate related sites. You may want to check a CPA or real-estate attorney.
In 2007 and 2008 CA waived tax on all mortgage deficiencies. For 2009, they didn't pass any law yet .
=> In California for non-recourse mortgage loan (Purchase Money first), collateral is what due to the bank, in this case the house itself.
But if the loan is refinanced, also if equity line was taken out, and also in case of many second mortgages it will be considered recourse loan, where the borrower is responsible for the loan. In that case, even if bank waive the deficiency, though Fed has waived tax, CA still requires to pay tax.
Again, it is as far as I read from many real estate related sites. You may want to check a CPA or real-estate attorney.
In 2007 and 2008 CA waived tax on all mortgage deficiencies. For 2009, they didn't pass any law yet .
I agree with Raj V. I'm also not a tax or legal expert, but IRS guidelines clearly state that any debt forgiven from "non-recourse" loans is not taxable income. In CA, any "purchase money" loans, including 2nd mortgages used to purchase home are treated as non-recourse. The thing I'm not sure about is what to do if lender sends 1099-C even if loan is non-recourse
Hi Savvy,
Even if banks issue 1099C - on box 5 ,
irs.gov/pub/irs-pdf/f1099c.pdf
"Was borrower personally liable for repayment of the debt?"
if it is indicated "NO" - it means non-recourse loan - as indicated by one Tax expert in CA.
So have to pressure bank to correct 1099C, in the case loan was used only to purchase home. I am hoping on that as well, with my bank .
Hope CA passes law - it's really disturbing though, if have to pay huge amount as tax on completed short sale.
We can also write to assemblymen/senator to pass the bill (SB 97)
Even if banks issue 1099C - on box 5 ,
irs.gov/pub/irs-pdf/f1099c.pdf
"Was borrower personally liable for repayment of the debt?"
if it is indicated "NO" - it means non-recourse loan - as indicated by one Tax expert in CA.
So have to pressure bank to correct 1099C, in the case loan was used only to purchase home. I am hoping on that as well, with my bank .
Hope CA passes law - it's really disturbing though, if have to pay huge amount as tax on completed short sale.
We can also write to assemblymen/senator to pass the bill (SB 97)
Thanks Raj V
I'm hoping that my lender will check 1099-C box 5 as "no", but will need to wait until early Feb to see what they send me. My home (short-sold in Feb 2009) was financed with a 80/20 zero down combo. 2nd loan was a purchase money HELOC. Didn't do any refinancing. I believe purchase money HELOCs are non-recourse in CA, but am not positive. Can you confirm? Also, if 1099-C does indicate non-recourse, I'm assuming I won't have to file form 982 for federal taxes?
I'm hoping that my lender will check 1099-C box 5 as "no", but will need to wait until early Feb to see what they send me. My home (short-sold in Feb 2009) was financed with a 80/20 zero down combo. 2nd loan was a purchase money HELOC. Didn't do any refinancing. I believe purchase money HELOCs are non-recourse in CA, but am not positive. Can you confirm? Also, if 1099-C does indicate non-recourse, I'm assuming I won't have to file form 982 for federal taxes?
As far as I know, the purchase money HELOC will be considered as non-recourse as it's a part of your initial mortgage. Thus, the lender will not be able to come after you for the balance dues.
Thanks. For my short-sale I had to pay down some of the purchase money HELOC to get the lender (Wells Fargo) to approve the short-sale. I did not draw from the HELOC again. Is it still non-recourse?
Though you used the HELOC for some other reason, I think it will still be considered as a non-recouse loan.
I'm in the same boat as "semi-savvy" and I just received my 1099C and my box 5 is checked "Yes" (1st Mortgage). I had an 80/20 used to purchase my CA home and never refinanced or changed anything. I was going to see what "TurboTax" comes up with before I consult a CPA.
Chase foreclosed on my No. Cal Condo in Sept. 2009 after denying me a Loan Mod. I moved shortly after the Auction. It's now an REO with the same bank and still vacant.
Since moving out, Chase has been pursuing me for the HELOC insisting it's a debt I owe. I ended up paying all missed payments, but it's set me back a lot! I learned when I refi'd it changed by 2nd loan to a Non-Recourse loan. It's just not right!
Anyone with similar experiences? Suggestions?
Since moving out, Chase has been pursuing me for the HELOC insisting it's a debt I owe. I ended up paying all missed payments, but it's set me back a lot! I learned when I refi'd it changed by 2nd loan to a Non-Recourse loan. It's just not right!
Anyone with similar experiences? Suggestions?
Waffle, I also got a 1099-C with box 5 checked "yes". I called the lender but they claimed that it was checked yes because I was liable for mortgage. I don't buy their argument because non-recourse debt should be "no", but may not be able to get them to re-issue 1099-C. Any luck with Turbotax?
I just spoke with the the California Franchize Tax Board regarding Senate Bill 97 (to extend cancellation of indebtedness of mortgage debt for 2009 - 2012). The Legislative Analyst for the bill said that he fully supports residents who foreclosed or did a short sale in 2009 and said that the most phone calls he gets is for this bill. The bill went through last year and the Governor vetoed it! He recommended that I call the governor's office, so I did and spoke to one of the Governor's representatives - she is putting my name down as supporting the bill (the more people who call the better).
If you can, call the Governor's office too (won't take more than 5 mins or so) it would be great - the more residents that support the bill the better. Tell them you are impacted by the issue and concerned over the tax ramifications. Governor's Office Phone # 916-445-4341.
If you can, call the Governor's office too (won't take more than 5 mins or so) it would be great - the more residents that support the bill the better. Tell them you are impacted by the issue and concerned over the tax ramifications. Governor's Office Phone # 916-445-4341.
Thank you Missjenn33, that was exactly what I was about to do. I will be calling first thing this morning. I am holding off on doing my taxes until I hear whats going on either way. You can track the status of SB 97 on leginfo.ca.gov. It looks like the last action taken was on Feb. 1st 2010 . Good news might be coming hopefully before taxes are due.
I suggest everyone follows Missjenn33's suggestion and call the Governors office, it will show them the urgency of this bill and also the support.
I suggest everyone follows Missjenn33's suggestion and call the Governors office, it will show them the urgency of this bill and also the support.
I called the governors office yesterday! Left my concerns about the impact this is having on me and my family. Did my taxes yesterday, found out I owe over $27000 to the state for my Short sale in 09. I dont know about the rest of you but if I had $27000 i would have saved my home not paid taxes..........Im waiting to file until the last minute hoping/praying they will approve the bill.
I just got off the phone with the Governors Office, that past then suggested I call my Senator and Representative, which then passed me over to Assembly Revenue and Taxation Committee which just informed me that SB 97 is a DEAD BILL, the deadline for it to make it out of committee had passed on Monday 2/1/2010 . I also asked if there was any other known legislation or bill in the works or relief for people that had Short Sales/Cancellation of Debt for the 2009 Tax year and was told there is nothing.
Feel Free to call and follow up.
Assembly Revenue and Taxation Committee
916-319-2098
Feel Free to call and follow up.
Assembly Revenue and Taxation Committee
916-319-2098
Senator Calderon is the one who will be re-introducing the bill to Arnold.
If you call his office, 1-916-651-4030 you can get better information. His staffer is Celina Valencia, she will talk to you about what is going on. The bill will get re-introduced during a Special Session but she has no tenative date for it yet.
If you call his office, 1-916-651-4030 you can get better information. His staffer is Celina Valencia, she will talk to you about what is going on. The bill will get re-introduced during a Special Session but she has no tenative date for it yet.