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forclosure and taxes

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aang

Junior Member
What is the name of your state? CA
If I let my home go into forclosure, will I be resposible for the taxes due? If it sells for less than I owe, am I going to be taxed? Or sent a 1099? Currently I have never missed or made a late payment, but I may not be able to keep paying the mortgage, especially if my ARM increases 3%. Should I stop the payments and let it forclose? Or am I going to be slammed with taxes if I do this?
 


moburkes

Senior Member
This question has been asked numerous times. I'm not sure why, if your house forecloses and it sold for less than what you owe on it, that you don't feel that you should be taxed on the difference, which is "earned" by you.
 

irsos

Member
You may likely get a 1099-C. If you are technically insolvent at the time (your liabilties exceed your assets), it will not be taxable. Part of the Bush plan to deal with the subprime problem is to specifically exclude this debt forgiveness from tax but I do not know the details.
 

LdiJ

Senior Member
What is the name of your state? CA
If I let my home go into forclosure, will I be resposible for the taxes due? If it sells for less than I owe, am I going to be taxed? Or sent a 1099? Currently I have never missed or made a late payment, but I may not be able to keep paying the mortgage, especially if my ARM increases 3%. Should I stop the payments and let it forclose? Or am I going to be slammed with taxes if I do this?
Of course, you should at least attempt to sell the home before allowing it to go into foreclosure. That is the proper way to protect your credit.

However, that being said, if the fair market value of the home is less than the mortgage balance, and the homes sells for less than the mortgage balance, you will be subject to tax(unless Congress passes something to change that or unless you can prove that you were insolvent at the time).

If the mortgage balance is less than the fair market value then you would not be subject to tax.
 

aang

Junior Member
Thanks for the advice from everyone. I am not trying to get out of this voluntarily and absolutely not trying to make money from it, but I have no assets left and no idea of how to handle this. I find it so hard to believe that my lender of all people is not willing to help me. The taxes that I was refering to are the property taxes, not taxes that are due from a sell. I mean if I can't pay the mortgage and the property taxes are in that payment, then will I be charged for them if my house ends up selling in forclosure.
 

abezon

Senior Member
As the owner of record, the county will go after you for back taxes.

Get the house sold. The county taxes are paid first, before the mortgage holder.
 

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