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 Lane Your Own Question
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11828
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
1929974
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

If there is a non-judicial foreclosure, I have two tax questions: Backgound:

This answer was rated:

If there is a non-judicial foreclosure, I have two tax questions:
Backgound: funds for 1st and 2nd (line of credit), both at same bank, were acquired in a 1st and 2nd years after purchase, and used other than for house.
Questions about short sale and non-judicial foreclosure

1. If spouse is on 1st and not 2nd as co-borrower, and it is the 2nd that is deficient, does she have any tax implications?
2. If she's on the deed (unsure), any difference?
3. If yes, she's liable for deficiency, and it's during separation while they are filing together, and husband has sufficient NOL's, does 100% go against his NOLs, or 50/50 if they start filing separately AFTER the sale.
3a. Any difference if start filing separately before the sale.
NOTE: she filed for divorce dec 29, 2011. 2011 returns are not done.

Lane :

Hi,

Lane :

All that really matters are two things; ... (1)Who's debt is it (who is liable (the way IRS will look at this, is whose name and SS# XXXXX XXXXX the 1099) and (2) was the forgiven debt secured by your primary residence?

Lane :

TO step back a bit ... IRS has ALAWAYS said, Forgiven Debt is an increase in net wealth (therefore income) ... i.e., you got the money, hd the use of it, and then never paid it back ... therefor it is income

Lane :

The Mortgage Debt forgiveness act of 2007 (extended for forgiven primary residence debt, through 2013), however says that any debt forgiveness ... (renegotiated loans, short sales, foreclosures, etc) ... as long as they are related to (secured by) you primary residence will not be taxable

Lane :

So again ... the person who is liable for the debt is the PERSON, or persons) we're talking about and whether the debt being forgiven is primary residence debt are the ONLY two thngs it really turns on.

Lane :

The rest of the tax situation, NOLs that might be there, etc are really not related.... the forgiven debt, that has ALWAYS been considered taxable income, is now waived. All other things remain the same.

Lane :

Questions?

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)



Please let me know if you have any questions as all ...



Lane

Lane and 4 other Tax Specialists are ready to help you

Hi Scott,

… just checking back in here, as I never saw you come into the chat.

Let me know if you need anything else at all on this.

Lane

Lane and 4 other Tax Specialists are ready to help you
Customer: replied 3 years ago.

for some reason the chat isn't coming up on my computer. I'll have my IT guy reset it.


 


I keep reading that the 1st and 2nd debt being secured by the house means something. Does that release me from forgiveness?


I have to find out if it's secured. I only know it's non-recourse.



Hi Scott ... sorry, I didn't get an alert that you had asked a follow-up ... I think they're having some system issues today, and yesterday.

The non-recourse part only applies to whether the bank can come after you PERSONALLY AFTER they have foreclosed and there's still remaining debt if the house being sold won't satisfy it (sell for enough to pay it off).

And again, what the money was used FOR is not the issue (doesn't matter)

All that matters is whether these were mortgages or equity lines of credit (when the house is what's being used to get the loan).

As long as that's the case (and based on the wording you're using ... "1st, 2nd" ... these are mortgage (or equity) type loans, ...

... which means that the tax on anything borrowed, not paid back, and the bank writes it off (forgiven)

is not taxable (or better said the tax is waived)

If the bank doesn't issue a 1099 that its not income at all ... If the bank DOES issue a 1099, then you just use form 982 with your taxes for the year and the tax is waived.


Make sense?

Let me know ...

Lane



Make sense?



Lane and 4 other Tax Specialists are ready to help you