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

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

Posted

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 only and is not legal advice. It must not be relied upon by you. Legal advice must be based on the exact facts of the particular situation. This forum does not allow for the discussion of those specific, exact facts. I provide legal advice only during the course of an attorney-client relationship. The exchange of information through this forum does not establish such a relationship with me. That relationship is established only by personal and direct consultation with me followed by the execution of a written attorney-client agreement by each of us. In this, as in all cases, you should personally consult with an attorney in your area for legal advice.

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Posted

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

Specialization
Electrical-Chemical-Mechanical Patent (Intellectual Property)

Attorney
(562) 594-9784
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 Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.

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