How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Lev Your Own Question
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
870116
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

I live in Ca. and I am in Foreclosure. I owe $300,000. If

Resolved Question:

I live in Ca. and I am in Foreclosure. I owe $300,000. If the bank takes the home back ( in 2010 ), and sells it for $100,000, can they come after me for the $200,000 deficit ? Also what are the new Fed. and State laws as to capital gains and earned income?
Submitted: 7 years ago.
Category: Tax
Expert:  Lev replied 7 years ago.

The foreclosure transaction itself - reportable on 1099-A - http://www.irs.gov/pub/irs-pdf/f1099a.pdf should be treated as disposition of the property at the sale price.

The capital gain/loss is calculated as (selling price) - (basis - that is mainly purchase price with some adjustments)

The loss on personal property is not deductible. The gain is taxable, but if the property was used as a primary residence at least two out of five years - you may exclude the gain from taxable income (up to $250,000 for singles)

 

If you negotiate with the creditor and all or part of the debt is forgiven or the debt would be canceled under bankruptcy protection procedure - you are sent the form 1099-C.

California law provides that in case of foreclosure or short sale of the primary home - homeowners may not be held liable for deficiency - that is a luxury of living in California.

However - your credit report will be damaged. See more details and examples in this article - http://www.gibsonlawcaliforniarealestate.com/deficiencies-when-is-a-debt-still-owing-after-foreclosure.html

 

The amount of debt forgiven is reportable on 1099-C - http://www.irs.gov/pub/irs-pdf/f1099c.pdf - generally is taxable, unless an insolvency exemption apply -- you should file a form 982 - to proof your insolvency - and might exclude all or part of canceled debt from taxable income.

The Mortgage Forgiveness Debt Relief Act of 2007 allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence. You still need to file the form 982 to claim the exclusion.

 

Let me know if you need any help.

 

Customer: replied 7 years ago.
Didn't the Fed. have new rules as to, if you are foreclosed in 2009 or 2010 then you 100 % forgiven ??
Expert:  Lev replied 7 years ago.

Yes - these new rules are based on the Mortgage Forgiveness Debt Relief Act of 2007 allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

 

You still need to file the form 982 to claim the exclusion.

However - the federal law doesn't require creditors to forgive the debt.

 

Lev and 4 other Tax Specialists are ready to help you