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Marvin,EA
Marvin,EA, Enrolled Agent
Category: Tax
Satisfied Customers: 1672
Experience:  Enrolled to Represent Taxpayers Before The IRS
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I bought an investment condo in 2005 for $500,000 and 10% down.

Customer Question

I bought an investment condo in 2005 for $500,000 and 10% down. I am unable to make payments and it is in foreclosure. When the bank eventually sells the condo (for about $200,000) will I have a tax liability? ($450,000 1st and 2nd MINUS $200,000 sales price)
Submitted: 8 years ago.
Category: Tax
Expert:  Marvin,EA replied 8 years ago.
Hello and thanks you for using Just Answer. The Mortgage Debt Relief Act of 2007 excludes from income any indebtedness discharged that is "qualified Principal residence indebtedness"   This is defined as acquisition indebtedness associated with a taxpayer's principal residence. The ceiling on acquisition for this relief purpose is $ 2,000,000. You will not have a tax liability of $450,000 to report on your federal income tax
Customer: replied 8 years ago.

This Condo was an investment and I have never lived there. My accountant seems to think that I won't have a tax liability but I don't trust his judgement.

Many thanks

Expert:  Marvin,EA replied 8 years ago.
If there is a loss on the sale of property the lenders will issue Form 1099-A, Acquisition or abandonment of Secured Property or Form 1099-C, Cancellation of Debt. These forms include information for you to se in calculation gain, loss or income from cancellation of debt. Any investment-use sale property is reported on Schedule D.   Generally, debt forgiveness is taxable unless you are insolvent.
Marvin,EA and 2 other Tax Specialists are ready to help you
Customer: replied 8 years ago.

Hello Marvin,

I understand about the 1099's that will be issued. I have been a Realtor for 18 years. BUT in my particular situation - I bought an investment condo in 2005 for $500,000 and 10% down. I am unable to make payments and it is in foreclosure. When the bank eventually sells the condo (for about $200,000) will I have a tax liability? ($450,000 1st and 2nd MINUS $200,000 sales price) will I have any tax liability? The 1099 will probably be for around $250,000 - the total debt of $450,000 MINUS the probable sales price of $200,000. My tax BASIS on this home is $500,000, the purchase price in 2005.

 

I have accepted this answer but would appreciate an knowing if I will owe tax.

Expert:  Marvin,EA replied 8 years ago.
If you receive a 1099-A for $250,000 and you are not insolvent you must add the amount to your tax return. If you are insolvent for 2008 you should be able to exclude the amount from your tax return. You can read more about insolvent at www.irs.gov/pub/irs-pdf/f982.pdf page 3 Part I