My mortgage company has suggested I do a Deed in Lieu instead of a short sale on a rental property that I cannot fill or pay for. They say they treat them the same when it comes to the 1099 and credit reporting. So a Deed in Lieu is much faster.
I would be (am currently) insolvent. Both my current house and the rental house that I plan to do a deed in lieu of foreclosure are both upside down due to the market.
Is it true that I calculate my insolvency at the time immediately before the Cancellation of Debt (COD) occurs (IRS Pub 4681). Therefore since the house is going to be my loss creating an insolvent basis of approx $35,000-45,000 wouldn't that pretty much mean it zero's itself out as long as I don't have any other assets worth anything? Would I then fill out form 982? or to prove insolvency - do I have to file bankruptcy? Since the house will be sold by the Mortgage company, isn't what they receive a true market value. Wouldn't i use that amount to base the amount for the Debt and therefore be the same amount as the COD?