I bought my condo for $330,000. I have a first mortgage for $285, 000, and a silent second, third and fourth equaling about $45,000. I am selling the home for $180,000. What am I going to owe in taxes?
2007-09-25 14:45:23 · 3 answers · asked by ajjsmith78 1 in Business & Finance ➔ Taxes ➔ Other - Taxes
A foreclosure on a home may also result in a 1099-C from the mortgage lender if the property is sold for less than the amount of the loan. In this instance, a person loses their home and may also face a tax bill. Usually, the bill comes many months after the tax return was filed as a result of an IRS document matching program. This "under-reporter" notice brings grief to the taxpayer.
The key issue is whether or not the debtor was insolvent. If they were insolvent, it may not be taxable depending on the circumstances. There is an "Insolvency exclusion." You are insolvent when, and to the extent, your liabilities exceed the fair market value of your assets. So it is possible none of your forgiven debt is taxable or it is possible that all or only a portion of it is counted as income.
You may not have any taxable income from the 1099C, but you must account for it on your return. The issue is whether or not you were solvent at the time of the debt cancellation. You only owe tax on the forgiven debt to the extent you were solvent. For instance, if the forgiven debt was $10,000 but you are only worth $5,000; you would only be liable for income tax on that amount. A home foreclosure is complicated and you may have other legal arguments besides insolvency.
If you are insolvent you need to explain this to the IRS on your tax return. You can fill out IRS Form 982: Reduction of Tax Attributes Due to Discharge of Indebtedness or attach a detailed letter to your tax return explaining the calculation of your total debts and assets.
2007-09-25 18:03:05 · answer #1 · answered by exirsman 5 · 0⤊ 0⤋
The amount of cancelled debt will be considered income, so you'll owe taxes on that amount, at whatever your tax rate is including that income.
2007-09-25 15:34:55 · answer #2 · answered by Judy 7 · 0⤊ 0⤋
Sounds like a loss , not a capital gain .
Why would there be taxes ?
You are not seeing any profits ?
But I want to see what the pros say or
You could email the big guys > > >
http://www.irs.gov/
>
2007-09-25 14:55:30 · answer #3 · answered by kate 7 · 0⤊ 2⤋