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: 22707
Experience:  Taxes, Immigration, Labor Relations
870116
Type Your Tax Question Here...
Lev is online now
A new question is answered every 9 seconds

I am in Los Angeles, California. I am currently working

Resolved Question:

I am in Los Angeles, California.

I am currently working on a loan modification.

I understand that if I do a short sale my principal residence or a deed in lieu I will have debt forgiveness on deficiency amount;
What happens if I get a loan modification?
What happens if I get foreclosed?
Submitted: 10 months ago.
Category: Tax
Expert:  Robin D. replied 10 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.

Robin D. :

Cancellation of all or part of a debt that is secured by property may occur because of a foreclosure, a repossession, a voluntary return of the property to the lender, abandonment of the property, or a principal residence loan modification.

Robin D. :

If any part is forgiven under either of your options posted you would have taxable income to deal with.

Expert:  Barbara replied 10 months ago.

Different expert here - Welcome. My name is XXXXX XXXXX it will be my pleasure to assist you with your tax question today.

 

You mentioned that the property is your principal residence, so the following will apply:

 

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring (such as a modification), as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

This provision applies to debt forgiven in calendar years 2007 through 2013. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home's value or the taxpayer's financial condition.

 

I hope this additional information is helpful to you, but if you have any additional questions, please come back to me here.

 

Thank you and best regards,

Barb

Expert:  Barbara replied 10 months ago.
Customer: replied 10 months ago.

I understand that if Foreclosure, Short sale or Loan Modification happens to me before 2013, any deficiency amount will be forgiven. In my case, I will run into 2014 and conclude any of the above in 2014, How will my tax consequences or the debt forgiveness change?


 

Expert:  Barbara replied 10 months ago.

Thank you for your follow-up question.

 

Please note that a few months ago, the Making Home Affordable (MHA) programs were extended by the federal government through December 31, 2015. Even though the Mortgage Forgiveness Debt Relief Act is not part of the MHA programs, extending it is being made a top legislative priority so that it coincides with the MHA program deadlines.

 

If it is not extended, then the cancellation of debt will be taxable income, but you may be able to utilize Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness to indicate the type of discharge of indebtedness and enter the amount of the discharged debt excluded from gross income. Any remaining canceled debt, if any, would be included as income on your tax return.

 

Please let me know if I can assist you further.

 

Thank you and best regards,

Barb

Expert:  Lev replied 10 months ago.
Hi and welcome to our site!
Unfortunately neither previous experts noted that you are in California.

As I know California is a non recourse state - and you should not expect form 1099C and would not need to use form 982..
A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.That is, the lender cannot pursue you personally in case of default.
Forgiveness of a non-recourse loan resulting from a short sale or foreclosure does not result in cancellation of debt income.

So with either short sale or foreclosure - from tax prospective.- the disposition of your property will be treated as a sale at the amount of the mortgage outstanding.
Thus - from the tax prospective - there will not be any difference.
What I suggest to confirm with your creditor that your mortgage indeed is a non recourse loan.
Let me know if you need any help.
Customer: replied 10 months ago.

Ok...So for clarification... I am not liable in California which I know is a non-recourse state, for any deficiency amount right?


 


Does this apply to my primary residence only or same for other investment properties?


 

Expert:  Lev replied 10 months ago.
That is correct.
Forgiveness of a non-recourse loan resulting from a short sale or foreclosure does not result in cancellation of debt income.
That applies to all properties used as a collateral for non-recourse loans.
The primary residence would have a non-recourse loan.
Investment properties might have either recourse or non-recourse loan.
In case of non-recourse loan - the balance of mortgage outstanding is treated as the sale price.
For the recourse loan - there would be COD income and the sale price is equal to the fair market value of foreclosed property.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22707
Experience: Taxes, Immigration, Labor Relations
Lev and 4 other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.