What are the tax implications of a foreclosure, non-recourse debt 397k, and the Fair Market Value is 550k?

Question

United States (California): If a foreclosure has been completed and the bank takes back the property, and forgave debt in the amount of 397k (non-recourse), but the Fair Market Value as listed on the 1099-c is 550k. Are there any tax implications?

Answer 1

The market value of the property has NO tax implications unless they sell for more than you paid. Even then, you can exclude up to $125,000 ($250,000) if married of gain from taxes.

If they sell for less than you owe, the amount 'forgiven' is taxes as regular income. If I read your question properly, you had $397,000 forgiven. That means you have $397,000 more taxable income than you would have had without the foreclosure. That puts you in the 35% bracket for any filing status without any additional income. 35% of $397,000 is over $135,000. I doubt you have that much if you had a foreclosure. My not so educated guess is you are a candidate for an "Offer in Compromise". I recommend consulting a tax professional.

If your total liabilities exceeded your total assets at the time the debt was forgiven, the Insolvency exception applies to including some or all of the forgiven debt as income. As a professional about that as well.

Answer 2

nicely, on the non-recourse very own loan the lender can no longer get a deficiency judgment it rather is a sturdy element. You for sure are attentive to the tax implications of debt forgiveness. The non-recourse nature of the very own loan won't help with the IRS. examine out IRS form 982 and section 108 of the IRS code. it would desire to be an option. Ask a good tax criminal expert approximately it besides, as that option would desire to maintain numerous money. it would desire to be difficult to cajole the lender in 2nd place that their very own loan is thoroughly valueless now. With the previous grant of $448k the seller could have in basic terms had to artwork out a short sale with the 2nd lien holder. regrettably, by potential of waiting too long, the placement is greater complicated now. As for the marketplace, i've got confidence we've a the thank you to bypass earlier we see any progression in California - exceedingly San Diego. The downtown San Diego condominium marketplace is severely overbuilt and costs are falling immediately. One super complicated in Little Italy has almost one 0.33 of its gadgets in some point of foreclosures. South Bay is yet another section that has been hit no longer common and could proceed to lose value into the close to destiny. Temecula and Riverside are in undesirable shape besides. most of the North county sea coast communities are protecting up particularly nicely yet that may not final. The sub-best very own loan resets that all and sundry has been speaking approximately attain their optimal volume in October this year so we've not considered the worst of it yet. The Fed and Congress will attempt to alleviate the discomfort of the marketplace correction as much as accessible however the numbers are so super that i do no longer think of their movements could have lots of an result. I anticipate a deteriorating marketplace via 2008 and after that it fairly is predicated upon how the final financial equipment is doing. If we enter a recession - seem out under. If no longer then possibly we are able to pull out of it. good success!

Answer 3

How much did the property sell for at auction? Based on your question it sounds as though they sold it for 397k less than you owed since you say they "forgave" this??

send me an email with more specifics and i can probably give you more accurate of an answer.

Usually the difference in between the net proceeds to the bank and the amount you owed will either be taxable income to you if it is less or returned to you if more.