Firstly,we can see the example of What are tax implications on a short sale?

I sold my house short after a bad divorce. Just got a 1099-C Cancellation of Debt from the mortgage company that list:

1. amount of canceled debt: 538,623
2. date canceled
3. interest: 90,002
4. fair market value: that is off by 8 million dollars, seriously

I was told that there would be no tax due from me on this sale. Will I have to pay taxes on the amount canceled or the interest?

Answer for this question:In the past, you would have had to pay taxes on the $538k of cancelled debt. But, due to the Mortgage Forgiveness Debt Relief Act, any amount of that balance that was used to buy or substantially improve your house will not be taxed.

So, if all of that debt was from your original mortgage, you won’t owe taxes on it. If $250 was your original mortgage, and another $280 was from a cash-out refi, then it gets tricky. You have to prorate the amount of the $280 that was used to improve your house. If you used $80 of the cash out refi for a big personal purchase (cars,pay off student loans, etc.) then you owe taxes on that portion of the forgiveness.

Here is a good link to the IRS’s website that explains it in more detail.

http://www.irs.gov/individuals/article/0,,id=179414,00.html

If you previously claimed the $90,000 as a tax deduction for mortgage interest you might need to file an amended tax return to undo that deduction.

For the amount of money involved, I would seek the advice of a tax professional and bring all the financial history of your house with you. It looks promising to you, but you want to be sure before you file that you are treating this 1099 correctly.

Also, if you have not yet settled all the financial issues of your divorce, any potential tax bill that might go along with this should be considered.

The FMV being off doesn’t really matter. What matters is how much the bank was owed at the time the property sold, and how much cash the bank accepted at short sale. That is what is reported to the IRS.

Example 2: Short Sales and Impending Tax Implications?

I was laid off 09/2008 and have still not found steady employment. I tried unsuccessfully to do a loan modification with our lender for almost one year. We owe 472k on a house we paid 275k for back in 2002. This has been our primary residence since then, we are now in the process of shortselling and a buyer’s offer of 400k has been submitted to our lender. I think there are too seperate items at play. First, the lender can come after me for 72k, the difference owed. Second We will be taxed on the difference of the net sales price of the home versus what we paid for it (400K-275K = 125k). Is this correct? How does the Mortgage Debt Relief Act of 2007 factor in?

Answers for Short Sales and Impending Tax Implications: You are upside down in your mortgage, the lender should behappy to get when he can. Should be, but reality might be different. You can always just walk away.

The lender can’t BOTH forgive your debt / write it off AND go after you to collect. They would have to choose. If they give you a 1099-A or 1099-C, they are not collecting. Most lenders write it off.

The mortgage debt relief act can be your friend. There is a decent chance you won’t owe taxes, but it might be worth while to have someone prepare your taxes next year. If you meet certain requirements, the money on the 1099 isn’t taxable to you.

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I would love to sell the house, but don’t think it is doable with current market. Also, 1 house has been on sale for 6 months with only 1 interested person. There are 4 houses that are lease houses, not sure the $$ for each to lease. I was going to lease to my mother-in-law to be for smaller amount than what mortgage is currently.

Find out what the rental market for the type of property you own. Download this sentence. You should be able to protect all income, the cost of mortgages, insurance, maintenance and depreciation. To evaluate the mortgage does not pay the rent.

If you rent the property for over three years (at this point it is not necessary) qualifies for the exclusion of primary residence, you can run Exchange 1031, if you move the capital gains.

What are the Tax implications if use your retirement funds to pay for your mortgage?

Withdrawls from a 401k or IRA are taxed as ordinary income (10% – 33%) plus a 10% penalty if you are under 59.5 plus state taxes. There are no exceptions for paying off a mortgage.I have seen up to 40% of the value of a retirement plan disappear to taxes and penalties when someone cashes one out. loan modification tax implications.

Will there be any tax implications if I ReFi?

It varies from state to state. In California, I have something similar in my house and my assessment has not changed. Moreover, if the values are declining in your area and the base is now X, it is checked whether a new assessment will contribute to the wealth tax is Y.

It’s always a good idea to get the best possible price. If he is able to qualify for fixed rate best available techniques (I will not under any circumstances, take any form of variable rate loans at the moment, regardless of the loan officer is promising) on its own it is very likely that the mortgage that he seeks more than to be borrowed. Do not make a payment (  affordable  is generally defined as the absence of more than 30% of monthly gross income, depending on who you talk to) using the best 30 year fixed rate, which is found qualified, then the loan is very large and need to find a smaller house. The biggest financial mistakes young couples do in these days to buy the house too, assuming that the revenue should be expanded to pay or be able to refi into a fixed rate loan at a later when better pay .

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