Posted on: 27th Jan, 2010 08:23 pm
Hi I just recieved a 1099 A for a rental property that was foreclosed in January 2009..I filed CH 7 BK in April 09 and was discharged on Nov 09..the loan was included in my BK..Box 2 shows $232154 for outstanding principal..Box 4 shows $249023 for FMV..Box 5 is cheked as YES..what does this mean am I liable for any taxes to be paid? Thank yoo.
Hi njda,
If the sales price of the house at the foreclosure auction did not cover the outstanding mortgage debt, you will be liable for the deficiency. If the lender forgives the deficient amount, you will have to pay taxes on this forgiven debt. The lender will send you a 1099A form to report the deficiency. However, it does not mean the lender has forgiven the deficient amount. It could be possible that the lender will come after you to recover this amount in future. Generally, lenders send you a 1099C form if the deficiency is forgiven.
Talk to the lender and check out whether he has forgiven the deficiency or whether he will come after you to recover it. If he has forgiven the difference, it will be seen as your taxable income. However, you can claim exemption from taxes as per the Mortgage Forgiveness Debt Relief Act, if you have used the property as your primary residence.
If the sales price of the house at the foreclosure auction did not cover the outstanding mortgage debt, you will be liable for the deficiency. If the lender forgives the deficient amount, you will have to pay taxes on this forgiven debt. The lender will send you a 1099A form to report the deficiency. However, it does not mean the lender has forgiven the deficient amount. It could be possible that the lender will come after you to recover this amount in future. Generally, lenders send you a 1099C form if the deficiency is forgiven.
Talk to the lender and check out whether he has forgiven the deficiency or whether he will come after you to recover it. If he has forgiven the difference, it will be seen as your taxable income. However, you can claim exemption from taxes as per the Mortgage Forgiveness Debt Relief Act, if you have used the property as your primary residence.