If the Mortgage Debt Relief Act expires before I complete short sale or foreclosure, would I owe tax in the following scenarios?

Asked over 2 years ago - Santa Monica, CA

My condo (primary residence) was purchased in California for 450,000. It is now worth 300,000. - I owe $400,000.

With the expiration of the Mortgage Debt Relief Act, would I pay tax on the forgiven amount (100,000) in the event of a foreclosure or a short sale.?

Is there any difference between the two, as far as TAX is concerned?

Attorney answers (2)

  1. 1

    Lawyer agrees

    Answered . Are you insolvent?

    Will the cap gains rate change after the election?

    Will you actually sell it for $300k?

    What is YOUR marginal rate of tax?

    What about costs of sale & broker fees? Is the buyer picking those up? the lender?

    Will you be doing the short sale within the confines of bankrutpcy?

    Why are you not wanting the bank to foreclose and walk away, especially given the recent changes to the California Code of Civil Procedure anti-deficiency law amendments (680)?

    You need to sit down with a tax professional with the answers to the above questions to begin to construct a scenario chart ( you may want to use 3-4 linear equations and promulgate a likelihood locus for yourself.)

    Please remember to designate your question's BEST ANSWER.

    Please remember to designate your question's BEST ANSWER.

    Curt Harrington
    Certified Tax Specialist -- State Bar of California Board of Legal

    Electrical-Chemical-Mechanical Patent (Intellectual Property)

    (562) 594-9784
    About Curt: http://patentax.com/curt/index.html
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    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal... more
  2. Answered . It depends on your financial situation. More information can be found at this IRS page: http://www.irs.gov/taxtopics/tc431.html. In order to exclude COD income, if you are issued a 1099 for it, you need to file the appropriate tax form.

    I am licensed in California only and my response assumes California law. It is provided as general information... more

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