Posted on: 08th Sep, 2009 05:11 pm
Hi, I have a rental home that I lived in for 3 out of the last 5 years. I owe 220K and fair market value is around $140K. My mortgage payment is $1550 a month and it appears that I won't be able to re rent it for more than $1100, so I will have to come up with the extra. This is a slow bleed that will probably not get better any time soon. I am considering foreclosing on the property. If the house is sold at a sheriff sale for say $125K then I assume I will get a 1099 for $90K. If I owe $220K and it's only worth $140K then this would make me insolvent, correct? So I would not be liable under I.R.S. tax for the say $90K?(1099) Am I correct in my thinking? I do understand the hit to my credit as well but holding on to this home financially makes no sense. Thanks for any responses.
Hi unclebuck,
The forgiven amount on your mortgage debt is considered as a taxable income. So, if your mortgage has been cancelled or forgiven by your lender, the IRS will send you a form 1099 where you will have to report this 'income'.
Thus, if your house is sold for $130k and the mortgage owed on it is $220k, you will owe a difference of $90k and you will be required to pay taxes on this amount. However, it is also possible that the lender does not forgive this amount and comes after you and sues you to recover it.
Since you lived in the house for the last 3 out of 5 years, it could be considered as your primary residence. In that case, you can qualify for the tax relief under the Mortgage Forgiveness Debt Relief Act of 2007.
The forgiven amount on your mortgage debt is considered as a taxable income. So, if your mortgage has been cancelled or forgiven by your lender, the IRS will send you a form 1099 where you will have to report this 'income'.
Thus, if your house is sold for $130k and the mortgage owed on it is $220k, you will owe a difference of $90k and you will be required to pay taxes on this amount. However, it is also possible that the lender does not forgive this amount and comes after you and sues you to recover it.
Since you lived in the house for the last 3 out of 5 years, it could be considered as your primary residence. In that case, you can qualify for the tax relief under the Mortgage Forgiveness Debt Relief Act of 2007.