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Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 46290
Experience:  29 years of experience as a tax, real estate, and business attorney.
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My father passed away 2 years ago. His estate is closed, there

Customer Question

My father passed away 2 years ago. His estate is closed, there was no more money (insolvent). We finally just short sold his house. The second mortgage forgave nearly 55k with no recourse. I have 2 questions.

1. It was is primary residence so does the estate qualify for the federal deduction for home mortgage debt forgiveness.

2. The house was inherited to my brother and I who are also the co PR's for the estate. Are we responsible to pay the IRS any money due, if this forgiveness is not deductable, out on our personal returns. The loan was in my fathers and mothers name only, both are deceased.
Submitted: 1 year ago.
Category: Tax
Expert:  Richard replied 1 year ago.
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good afternoon. There's good news and bad news. 1) The bad news is that since this wasn't his homestead, it would not qualify as the principal residence of the borrower. 2) The good news, however, is that the IRS' only claim is against his estate, not you. Since the estate is insolvent, the IRS simply will write off the debt. Since you were not liable on the debt itself since you were not the borrower on the loan, the loan was nonrecourse to you and the other heirs. Thus, you has no liability for the debt and thus there could be no forgiveness. So, you have no worries with the IRS.



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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 46290
Experience: 29 years of experience as a tax, real estate, and business attorney.
Richard and 3 other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Thanks, XXXXX XXXXX feel better. Just to confirm, it WAS his homestead property while he was alive, but you are saying since he has passed it is no longer homesteaded property and therefore not eligible, correct?

Second, do I need to file any sort of return on behalf of the estate or my father personally for the forgiven debt? I want to make sure I have done my job properly as Personal Rep.
Expert:  Richard replied 1 year ago.
You're welcome..it's my pleasure to help. Since he died, it would not be his principal residence when the loan was forgiven. You need do nothing unless the lender issues a 1099-C to your dad. If they do, file a tax return on behalf of your dad's estate and complete Form 982 and claim the insolvency exemption.
Expert:  Richard replied 1 year ago.
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