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Merlo
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Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I am trying to sell my house. I solely purchased it 3 yrs

Resolved Question:

I am trying to sell my house. I solely purchased it 3 yrs ago today for 244,900. I just went through a divorce and am trying to sell as the income is now 1/2. The FMV is 181k. The difference is 63.9k. Will I have to pay taxes on this amount if I do a Deed In Lieu(like a Voluntary Foreclosure)? It is listed for 224,900 till Oct 20th (4 weeks) then I want it listed at 181k the FMV. Bank of America would then take the home back after it is listed for 3 months at that price. Would I need to pay taxes on the difference? or is there this 250k exemption for 2009? I put 30 k down three years ago and have LOST all that amount plus I would just about break even if I sell at that price and could avoid the "Short Sale" or "Deed In Lieu."

If I put it up for the 3 months as requested by Bank of America then the date would fall into 2010. Would the 250k one time exemption be canceled in 2010?
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
Hello Chrystal,

Normally when you would go through a foreclosure or short sale or died in lieu, you would be liable for tax on the amount of the forgiven debt. However, due to the recent lending crisis in our country, Congress passed temporary legislation which allows taxpayers who go through foreclosure or short sale to exclude this cancelled debt from their taxable income, as long as the property involved was their primary residence.

The Mortgage Forgiveness Debt Relief Act of 2007 allows you to exclude certain cancelled debt on your principal residence from your income. It applies to mortgage debts that are cancelled during the calendar years of 2007 through 2011 . You would still receive a 1099-C form from your bank showing the amount of the debt that was cancelled, and you would still report this to the IRS using Form 982 which you attach to your tax return, but you may not owe tax on the debt forgiven.

I am giving you a link below to a section of the IRS website which explains this in more detail.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you Chrystal


http://www.irs.gov/individuals/article/0,,id=179414,00.html


Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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