Originally Posted by Fainimal
#1;My question is about tax liability for myself. What exactly am I on the hook for here?
#2;Is it all taxes for the full 114K? Or do I pay taxes on the amount of debt forgiven? This whole thing is so confusing.
I'm not even going to get into what is fair and what is not here, I'm just trying to get an idea of what exactly I am responsible for when it comes time to pax my taxes next year.
If more details are needed, please let me know.
Thank you in advance for reading this.
#1; When your lender forgives the mortgage debt arising from short sale, they typically issue short sale you IRS Form 1099-C; Forgiven loan debt is declared on tax return for the year in which it was forgiven: You can't decide to declare loan debt forgiven in 2013 on your 2014 or 2015 tax return ; it nreeds to be declared for your 2013 return. Also, don't wait on 1099-Cs to arrive before declaring on your tax return any loan debt your lender has notified you it's already forgiven. Lenders sometimes neglect to send borrowers 1099-Cs showing forgiven loan debt, but still send them to the IRS. The IRS considers forgiven loan debt to be taxable income gained by the borrowers benefiting from such forgiveness. A home's short sale for less than its mortgage balance leaves a deficiency or negative loan balance. If you've short-sold your home, and the lender forgave any post-short sale deficiencies, you'll need to report that debt forgiveness on your tax return. Your lender will also send a 1099-C to the IRS in addition to the 1099-C it gave you after your short sale.
#2;basically, aslongas you transfer title on your home, whether voluntarily or involuntarily through foreclosure, you have sold your home. You might be subject to taxes, even if you sold your home at a loss, either on a short sale; so, You may have to pay taxes on the sale even if you lost money and may receive an IRS form 1099c , cancellation of debt from your lenders . unfortunately, the debt you avoid by completing a short sale creates a new tax liability for the year in which you sold the property. If your lender mitigated more than $600 of your outstanding mortgage after short-selling your home, the IRS requires you to report and pay taxes on the full amount of discharged debt on your income tax return. For example, if you owe $150k on the mortgage, but the bank accepts $100k as their final payoff in order to facilitate the short sale, the difference of $50k is the amount that is counted as “forgiven debt.” The IRS considers this $50k as if the bank gave yuou a gift for that amount, which was immediately used by you to pay down your mortgage. Therefore, taxes would be due on the amount given by the bank.
mortgage company forgave the remainder of your debt. Then you received a 1099-S form for the amount that you sold my home for.
Note;The Mortgage Forgiveness Debt Relief Act of 2007 eliminated the taxation on most of these situations. However, if the money you got from the forgiven loan was not for the purchase or improvement of the home but used for other purposes, you may not be out of the woods