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CGCPA
CGCPA, CPA
Category: Finance
Satisfied Customers: 3738
Experience:  40+ years experience in taxes and financial planning
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The bank foreclosed on my house and sold it for a $100,00.00

Customer Question

The bank foreclosed on my house and sold it for a $100,00.00 less than several buyers were willing to pay for a short sale. i was denied by the bank after they had strung me on and asked me to upgrade the house for a short sale and turned around to foreclose on me.
The bank sent me a 1099A and is lying about the fair market value of the house as 416,000.00 but sold the house for 235,00.00. Do I have a legal course against the bank and can I file the loss of my second home (the house foreclosed) as a loss with my taxes. Does it matter that they are reporting a false fair market value for the house??????
Submitted: 3 years ago.
Category: Finance
Expert:  CGCPA replied 3 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

The market value has no tax consequence so I would not be concerned about the number they entered there. The foreclosure sale does have a tax consequence if the sale of the home did not produce a sufficient amount to pay off the mortgage in full. If that was the case you will, later perhaps in 2012 for 2011, receive a 1099-C (Income from debt cancellation). This amount will be taxable unless you are able to claim one of the exclusions provided for in the law. Secondly, unless the property was a rental property you are not able to claim a loss on a personal residence (first or otherwise).

I will get the exclusion rules for you and return. You mat want to calculate this while it is fresh in your mind and details get blurred. Then save it for next years return preparation.

Expert:  CGCPA replied 3 years ago.

Here is some introductory information. I will also get the insolvency worksheet and provide that momentarily.











Special Web Section Unveiled for Homeowners Who Lose Homes; Foreclosure Tax
Relief Available to Many






IR-2007-159, Sept. 17, 2007

WASHINGTON - The Internal Revenue Service unveiled a special new section
today on IRS.gov for people who have lost their homes due to foreclosure. The
IRS also reassured homeowners that, although mortgage workouts and foreclosures
can have tax consequences, special relief provisions can often reduce or
eliminate the tax bite for financially strapped borrowers who lose their homes.

The new section of IRS.gov includes a variety of information, including a
worksheet designed to help borrowers determine whether any of the
foreclosure-related relief provisions apply to them. For those taxpayers who
find they owe additional tax, it also includes a form they can use to request a
payment agreement with the IRS. . In some cases, eligible taxpayers may qualify
to settle their tax debt for less than the full amount due using an
offer-in-compromise.


The IRS urges struggling homeowners to consider their options carefully
before giving up their homes through foreclosure.


Under the tax law, if the debt wiped out through foreclosure exceeds the
value of the property, the difference is normally taxable income. But a
special rule allows insolvent borrowers to offset that income to the extent
their liabilities exceed their assets.


The IRS cautions that under the law, relief may be limited or unavailable in
some situations where, for example, part or all of a home was ever used for
business or rented out.


Borrowers whose debt is reduced or eliminated receive a year-end statement
(Form 1099-C) from their lender. By law, this form must show the amount of
debt forgiven and the fair market value of property given up through
foreclosure. Though the winning bid at a foreclosure auction is normally a
property's fair market value, it may not necessarily reflect its true value in
some cases.


The IRS urges borrowers to check the Form 1099-C carefully. They should
notify the lender immediately if any of the information shown on their form is
incorrect. Borrowers should pay particular attention to the amount of debt
forgiven (Box 2) and the value listed for their home (Box 7).


The IRS also reminds lenders of their obligation to provide accurate
information on the Form 1099-C. By law, the lender must send a copy of this
form to the IRS. IRS follow-up contacts with taxpayers involved in foreclosure
are based largely on the information reported on this form, and whether it
conflicts with information provided by the taxpayer on their federal income tax
return.


The IRS normally initiates these follow-up contacts by sending the borrower a
notice. The tax agency urges borrowers with questions to call the phone number
shown on the notice. The IRS also urges borrowers who wind up owing additional
tax and are unable to pay it in full to use the installment agreement form,
normally included with the notice, to request a payment agreement with the
agency.


Related Item:Questions and Answers on Home
Foreclosure and Debt Cancellation









Special Web Section Unveiled for Homeowners Who Lose Homes; Foreclosure Tax
Relief Available to Many






IR-2007-159, Sept. 17, 2007

WASHINGTON - The Internal Revenue Service unveiled a special new section
today on IRS.gov for people who have lost their homes due to foreclosure. The
IRS also reassured homeowners that, although mortgage workouts and foreclosures
can have tax consequences, special relief provisions can often reduce or
eliminate the tax bite for financially strapped borrowers who lose their homes.

The new section of IRS.gov includes a variety of information, including a
worksheet designed to help borrowers determine whether any of the
foreclosure-related relief provisions apply to them. For those taxpayers who
find they owe additional tax, it also includes a form they can use to request a
payment agreement with the IRS. . In some cases, eligible taxpayers may qualify
to settle their tax debt for less than the full amount due using an
offer-in-compromise.


The IRS urges struggling homeowners to consider their options carefully
before giving up their homes through foreclosure.


Under the tax law, if the debt wiped out through foreclosure exceeds the
value of the property, the difference is normally taxable income. But a
special rule allows insolvent borrowers to offset that income to the extent
their liabilities exceed their assets.


The IRS cautions that under the law, relief may be limited or unavailable in
some situations where, for example, part or all of a home was ever used for
business or rented out.


Borrowers whose debt is reduced or eliminated receive a year-end statement
(Form 1099-C) from their lender. By law, this form must show the amount of
debt forgiven and the fair market value of property given up through
foreclosure. Though the winning bid at a foreclosure auction is normally a
property's fair market value, it may not necessarily reflect its true value in
some cases.


The IRS urges borrowers to check the Form 1099-C carefully. They should
notify the lender immediately if any of the information shown on their form is
incorrect. Borrowers should pay particular attention to the amount of debt
forgiven (Box 2) and the value listed for their home (Box 7).


The IRS also reminds lenders of their obligation to provide accurate
information on the Form 1099-C. By law, the lender must send a copy of this
form to the IRS. IRS follow-up contacts with taxpayers involved in foreclosure
are based largely on the information reported on this form, and whether it
conflicts with information provided by the taxpayer on their federal income tax
return.


The IRS normally initiates these follow-up contacts by sending the borrower a
notice. The tax agency urges borrowers with questions to call the phone number
shown on the notice. The IRS also urges borrowers who wind up owing additional
tax and are unable to pay it in full to use the installment agreement form,
normally included with the notice, to request a payment agreement with the
agency.


Related Item:Questions and Answers on Home
Foreclosure and Debt Cancellation

Expert:  CGCPA replied 3 years ago.

Here is a link concerning insolvency. The explanation begins on page 4 of this IRS document and is followed by the insolvency worksheet.

http://www.irs.gov/pub/irs-pdf/p4681.pdf

Customer: replied 3 years ago.
The house was foreclosed in 2010 my intent was to rent the house but I never liked the offers I got. Which is to my benefit take it as a loss as that was the intent for this house a rental house. I lived in this house and I bought a second home as my primary but I never got to rent this house as i got bad offers. the only offer we agreed on changed their mind. do I get to pay taxes on the foreclosed property because it was a second home or claim it as a loss because I did a lot of work on the house to have it rented please answer this question for me
Expert:  CGCPA replied 3 years ago.
If the purpose of the home was to be a rental but you have no rental income to report the IRS will seriously question any attempt to take a tax loss. If you can document the effort to rent it and the remainder of your tax life in spotless go ahead. Otherwise, I would just walk away. An audit can cost many hours of stress and money. If the write off is disallowed you will also be charged penalties and interest. You also run the risk of civil tax fraud penalties (3x the tax change). We already discussed the non deductibility of the loss on your primary residence.
CGCPA, CPA
Category: Finance
Satisfied Customers: 3738
Experience: 40+ years experience in taxes and financial planning
CGCPA and 3 other Finance Specialists are ready to help you
Customer: replied 3 years ago.
I hired a real estate agent or company and listed the house for rent I have the documents to prove that and all the email to that effect. The market was going down and they all wanted to rent the house for less than my mortgage I spent so much money to get the house for rent but i could not get a qualified rental person. with this can I get to qualify this as a loss
Expert:  CGCPA replied 3 years ago.
It certainly will. You will need to claim the home as a rental property on Schedule E of your return and reclassify any interest and taxes paid on this house to that page. You can also take a deduction for homeowners insurance and at least a small portion of the utility bills. If you were living in the house I would only claim a small portion of the utilities since the majority would be from personal use. Do not take depreciation since it will need to be recaptured as income anyway. To do this, with a 2010 foreclosure, you may need to file amended returns if you already filed.
Customer: replied 3 years ago.
In my case my second home was the one foreclosed so I have to pay taxes on debt forgivenss unless I file for a tax loss for the second home is this accurate
Expert:  CGCPA replied 3 years ago.
If you were not insolvent at the time of foreclosure you will need to claim the debt cancellation as income. However, if you also claim the expenses and loss on the "rental" home the financial impact could be small.
Customer: replied 3 years ago.
what is insolvent I don't understand this
Expert:  CGCPA replied 3 years ago.
Insolvency means you were unable to pay the obligation through available liquid assets. Liquid assets means money, amounts owed to you, savings accounts, CDs, and other readily convertible to cash assets like brokerage accounts.
Customer: replied 3 years ago.

Thanks for the information. Please let me go by actual numbers. I owed 4700.00 on the house and it was sold for 235,00.00 since the deficit is 235,00.00 and it is equal to the value of the house then can I say that the tax liability is zero because the forgiven debt is not above the value of the house. If the forgiven debt was 245,000.00 then can I say I owe about $10,000.00 in tax liability.

Expert:  CGCPA replied 3 years ago.
If you owed $470,000 and the house sold for $235,000 then the remaining $235,000 is the debt cancellation income. If you do not qualify for the insolvency exclusion the tax, Federal, will be about 25%. The state will add about another 10%. This is a much larger amount than the $10,000 you are anticipating.It is approximately $82,500. You really need to work out the insolvency worksheet and consider the rental property approach.As a matter of fact, facing this kind of potential tax bill, I would see a local CPA to help you through all this.

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