Today TaxMama hears from Sasha in Georgia who tells us. “In 2007, I had a foreclosure on my condo in April.
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In August I filed for Chapter 7 bankruptcy. I received my discharge in December. This year, I received a form 1099-A from my mortgage company.
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I’m not sure if I have to declare this as income. My balance on my mortgage was $97,000.00 and the fair market value of my home was 102,800.
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00.
Hi Shashi,
You had a rough year. I hope your finances are much better this year. That foreclosure in April may or may not generate a taxable event.
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Too bad it didn’t happen while you were in the bankruptcy – there would definitely be no taxable event in that case. Oh well.
Two things happen when a home is foreclosed upon.
1) You have a sale – for the Fair Market Value, less your cost. If the profit is under $250,000 ($500K for couples) and you’ve lived there for two years – you have no gain to report.
2) Cancellation of debt. This has nothing to do with the market value.
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This is difference between the loan balance when it was foreclosed, and the amount of money the lender received when they sold the property. If the lender was fully paid off, great! You won’t owe taxes.
Oh, good news. Based on the recent tax legislation, if the mortgage qualifies as acquisition debt,
may not have debt cancellation income at all! https://taxquips.com/index.php?id=655
BUT, since you got the 1099-A, you will have to report both parts of this transaction. Please see if, just for this year, you can get a good, Georgia tax professional to help you.
And remember, you can find answers to all kinds of questions about foreclosures and other tax issues, free. Where? Where else? At TaxMama.com
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