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Old 01-23-2017, 04:43 PM
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Paying Taxes on a deed in lieu

In September of 2015 I did a deed in lieu with my lender. Today I recieved a 1099A. in box 2 -balance of principal outstanding it says 66,533.00. In box 5 fair market value of property it says 109,900.00. Am I responsible to pay taxes on the 66, 533.08? The house was in foreclosure during the 2014 year, and I know there was a debt relief act, but I am not sure if it applies.



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Old 01-24-2017, 08:04 AM
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In September of 2015 I did a deed in lieu with my lender. =>> If you plan to give up your home but want to avoid foreclosure you might consider a short sale / a deed in lieu of foreclosure. These options allow you to sell or walk away from your home and may help you avoid incurring liability for a "deficiency."


Today I recieved a 1099A. in box 2 -balance of principal outstanding it says 66,533.00. In box 5 fair market value of property it says 109,900.00. Am I responsible to pay taxes on the 66, 533.08? The house was in foreclosure during the 2014 year, and I know there was a debt relief act, but I am not sure if it applies.===>> The Form 1099-A is used to report that property was received. It does not say whether the debt was cancelled. If the debt is cancelled, then you get Form 1099-C. If you have property that is both foreclosed on and the debt is cancelled, you?ll get both Form 1099-A and Form 1099-C. If you only get Form 1099-A, that probably means the debt has not been cancelled. Depending on the state you?re in, the lender may have as long as 4 years to come after you for that debt.
Regarding the form 1099A,You'll need the selling date and selling price of the foreclosed property to properly report its "sale" on your return, Form 1099-A provides you with the date of sale and the "selling price" of the property. You will use either the FMV of the property or the outstanding loan balance on the property for the selling price.Both these figures are reported on the form. The outstanding loan balance is found in Box 2. The property's FMV is found in Box 4. The date of the foreclosure is indicated in Box 1, and this will be used as the date the property was disposed of that is, the "sale date. The difference between the Box 2 and Box 4 is not your taxable gain on the foreclosure. You need to calculate your gain by comparing the ?selling price? you used to your purchase price, which is your cost basis in the property. The purchase price and date can be found on the HUD-1 closing statement you received when you purchased the property. The difference between the selling price and your cost basis is your gain, which you can enter on Sch D and on line 13 of your Form 1040 tax return.Capital gains are reported on Sch D for homes that were personal residences. The IRS does not allow taxpayers to claim losses on personal residences. Assuming the foreclosed property was your personal residence, you must prepare and file Sch D with your tax return. You need to use the date of the foreclosure in Box 1 of the 1099-A as your date of sale. Then indicate the selling price. This will be either the amount in Box 2 or the amount in Box 4.
Which box you'll use depends on the lending laws in the state where the property was located. State law determines whether the amount in Box 2 or the amount in Box 4 is your selling price, so check with a local tax professional to make sure you select the correct one;

So, Form 1099A is reporting to you and the IRS the proceeds of the transaction but you also have basis in the property that was foreclosed.
If this was a personal residence and you meet the exceptions for the exclusion of capital gain on a principal residence, then the gain won't be taxable. If you have a capital gain, determine if there are any exclusions to that gain.



Just for reference, Some homeowners might receive Form 1099-C and 1099-A if the lender both foreclosed on the property and canceled any remaining mortgage balance for which the borrower was personally liable. In this case, the IRS takes the position that you received income from the foreclosure you received money from the lender to purchase your home and you did not pay all that money back. But although forgiven debt reported on Sch 1099-C is usually taxable income, the Mortgage Forgiveness Debt Relief Act generally excludes mortgages canceled through foreclosure.



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