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emc011075, Tax adviser
Category: Tax
Satisfied Customers: 3179
Experience:  IRS licensed Enrolled Agent and tax instructor
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I have a second home in NC. Both my ex husband & I live in CA and are both on the mort

Customer Question

I have a second home in NC. Both my ex husband & I live in CA and are both on the mortgage (but he has been paying the payment for the last 4 years...unable to qualify to refi solely). He is defaulting on the loan & I have to decide whether to begin making payments & try to sell it, or just foreclose. Unsure of the condition or ability to sell for what is owed, appraisal pending. If I foreclose, what are the tax implications on a second home? Would my ex also be liable for half of those implications?
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.
Hi. My name is ***** ***** I will be happy to help you. If you sell it, you may have some capital gains depending how long and when you used your NC house as your primary resident. When you foreclose it, the consequences may be more severe, depending on mortgage balance and the equity value in the house. Since both of you are on the mortgage, if foreclosed and/or sold short, the bank will cancel the rest of the debt and you will be have to report it as income. Both of you will get 1099C for the entire balance (the bank will not split it 50/50 for you) so you will have to work with your ex on how to file your taxes, if one of you can claim insolvency or how to split the debt.
Customer: replied 1 year ago.
The home was never a primary residence & neither of us are insolvent. But the home likely has negative equity (appraisal pending). Is the capital gains tax for the entire mortgage balance OR on the mortgage balance less the amount the bank ultimately sells the home for?
Expert:  emc011075 replied 1 year ago.
For capital gains calculation balance of the mortgage is irrelevant. You didn't claim it as income when you got the mortgage, you cannot deduct the payments or the remaining balance when you sell it. Your capital gains will be the difference between sales price and your basis + settlement (closing cost). Your basis will be your purchase price + improvements. If you sell the house for less than you bought it, you will not have any capital gains. Did you used it as rental property by any chance?
Expert:  emc011075 replied 1 year ago.
Any questions? Is there anything else I can help you with today?
Expert:  emc011075 replied 1 year ago.
I see you offline now. So if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. You find the rating bar on the top of the page – 5 stars. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.