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Richard, Tax Attorney
Category: Tax
Satisfied Customers: 55278
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: 4 years ago.
Category: Tax
Expert:  Richard replied 4 years 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.

Thank you so much for allowing me to help you with your questions. I have done my best to provide information which will be helpful to you. If I have not fully addressed your questions or if you have any follow up questions, or if I have misinterpreted your questions in any way, please do not rate me yet, but simply ask a follow up question without rating so I can provide you with a fully satisfactory answer. If I have fully answered your question(s) to your satisfaction, I would appreciate you rating my service with 3, 4, or 5 faces/stars so I can receive credit for helping you today. I thank you in advance for taking the time to provide me a positive rating!

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Customer: replied 4 years 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 4 years ago.
You're'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 4 years ago.
Thank you so much for the positive rating! I appreciate having had the opportunity to serve you! If I can be of assistance to you in the future, just look me up and I will be happy to help! For easy access, my bookmark is: