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NO you will not, as one article put it:
The Mortgage Forgiveness Debt Relief Act survived the fiscal cliff when it was given a one year extension through 2013. Homeowners who sell their primary residence in a short sale or lose their home to foreclosure will not have the added insult to injury of losing their home and then having to pay taxes on the loss up to $2 million ($1 million if married filing separately).
And here's the IRS guidance, (although remember this is what was extended through 2013) : http://www.irs.gov/uac/Home-Foreclosure-and-Debt-Cancellation
Foreclosue, Deeds in Lieu and Short Sales all apply
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So, you are telling me that I will have to pay taxes on the difference between the $193,000 I owed at start of foreclosure and the amount it sold for at auction ($155,000). I purchased the home in 1987 and refinanced 3 or 4 times. That is why I was underwater. Thank you.
No, as long as the 1099 is for 2013 of previous you will owe nothing period... my point was that all forgiven debt (whether it takes the form of any or all of the three) is forgiven
OR previous (2007 and forward)
What it turns on is simply (1) forgiven debt and (2) it was your primary residence
File form 982 with your tax return to show that the 1099 was for forgiven debt on your primary residence... that's it
Interesting. My tax lady said I would owe taxes on the difference as I laid out above. My understanding was it depended if the mortgage bank sent you a 1099. So, for sure, I will owe nothing in taxes for 2013?
let me back up and kind of put it in perspective...
(1) Whan a bank sends you a 1099 (and a copy of the 1099 to IRS), it means that they have forgiven the debt (part of their motivation is to be able to document that they HAVE written it of and can take their own deduction) ...
(2) Normally IRS considers forgiven debt a net increase in wealth (you had the use of the money and did not pay it back), so it's essentially income
(3) the mortgage forgiveness act was done to say to taxpayers... we're not going to tax you on that forgiven debt because of the mortgage crises and the inflated housing market... in other words... the way it happened
(most other forms of forgive debt are still considerd income (used to be called phantom income)
What amount would be considered income? The difference between the $193,000 I owed when I stopped making payments and the final $239,000 (which included late payments) is what is added to my income?
SO, of you have forgiven debt, and that debt was because of (1) a short sale (2) a foreclosue OR (3) a deed in lieu of foreclosure, it will not be taxable ... IUF ... it was secured by your primary residence
Any and all forgiven debt
whatever the bank writes off and doesn't come after youffor
So, I will not be taxed on the money as additional income? Not clear on that.
The botXXXXX XXXXXne is the 1099
That is correct
Tight now we don't know what might happen on a 1099 that comes floatin for the 2014 tax year (where the bank did not actually forgive/write off for themselves the debt during the time for which the extension covers
So, I will not know until I receive the 1099 from the mortgage company in 2014?
That's exactly right .... You can call them and they should be able to tell you ... but from a pure tax reporting and complaince perspective, it's that 1099 that the IRS will receive that is what needs to be documented as primary residence debt that was forgiven
When the bank writes it off (and they get their OWN deduction) is the year for which they will SHOULD give the 1099 .. that's the tax year that the tax was forgiven
Does that mean the 1099 will state that I owed $239,000 (which includes the payments and penalties) and then the form states that the mortgage company wrote off the loss? I initially owed $193,000.
The amount forgiven will reflect the difference between what you legally owed them and what they can sell the house for to offset that debt (what you INITIALLY owed may not be the end of it ... But the value of the house will reduce what is forgiven
And agan, what the 1099 say is, in a way, irrelevant ... if it was forgiven debt (and it would be if a 1099 is issued), and if it was secured by your primary residence (WHATEVER THAT AMOUNT IS) it will not be taxable in 2013
Will I face any repercussions if I contact the mortgage company?
NO if the notice of foreclosure has already been sent it's really in the lawyers' hands now. Every bank is different and has it's own personality, but if they've already started foreclosure, there's really nothing worse they can do... They MUST, by law, issue the 1099, and they've already done to you as much as they can (take your home)
Now, it IS possible that they don't yet know what the actual amount will be, but again that's not really the point ... whatever it is will not be taxable because of the mortgage forgiveness relief act
So, no taxes for 2013 related to the foreclosure. The foreclosure took place at the end of January 2013.
That's right .. No taxes for any primary residence debt forgiven in 2013, and if the foreclosure is done the debt was forgiven.\
That's what I wanted to hear! Thank you for your patience in answering all of my questions. I will fill out the survey so you will be paid.
Would not be surprised AT ALL to find (if we could ever see inside those banks) that the foreclosure was scheduled in Jan 2013 because they thought the act would expire
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Thank you again for all of your help.