For my second house which I own more than 2 years, If I foreclose, Do I still have to pay taxes to IRS.?

Question

it is not a rental property. it is my second house

Answer 1

I am not sure what you are asking, but the bottom line is if you owe taxes, nothing gets you out of that, neither bankruptcy or foreclosure.

Answer 2

Your tax on this issue could be zero or it could be tens of thousands of dollars. Do not attempt this return on your own.

There are multiple tax issues here:

1) You may have a capital gain based on what the bank sells the house for. You can not have a loss as it is personal property. The 2 out of 5 year exclusion rule only applies to your principle residence.

2) You also may have forgiveness of debt income from the cancelation of the remaining mortgage if the bank sells if for less than you owe on it.

The income tax in part two may be avoided if you are bankrupt or insolvent at the time of the foregiveness of debt though it may be tough to prove insolvency when you own another home and your debt relative to that home is low.

Your best bet is to see a CPA or EA in your area that has experience with forgiveness of debt and Form 982.

Answer 3

If you foreclose that means you are not making money on it, I assume. So if the loan on this second house is more than the selling amount, then the difference is considered to be gift from the lender, on which lender would issue 1099 to you. In such case, you owe income tax on this amount.

Answer 4

nicely - i'm no tax expert, yet what i think of is: in case you have a regular mortgage in basic terms, the financial enterprise will take lower back the valuables and you will not owe any tax. in case you had a regular AND a 2d mortgage, then the 2d mortgage (who won't have the potential to take lower back the valuables) will hit you with a forgiven debt to the IRS and that 2d mortgage would be considered earnings and taxed for that reason.

Answer 5

How do you plan to foreclose on yourself?