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I hope I phrase this question well enough and there is a somewhat easy answer - if I have to foreclose on a property and it does not qualify under the Tax Relief act, how much will I end up owing in taxes on this property? Say, if I foreclosed on a $100,000 loan/property, what I would I owe in taxes next spring? (Is there an easy calculation for this?)
It depends on whether the lender has canceled the debt. If they give u a 1099 C and canceled the debt and you don't qualify for the mortgage forgiveness act.
If you get a 1099 C in amount of 100k. You taxes owed would be close to 30k.
If you don't get a 1099 C. Than lender could pursue you for the entire 100k.
Sorry, let me add as this probably makes a difference - my home is worth more than I owe on it, it is only due to some personal issues that I need to sell but I can't afford to keep it on the market much longer. In theory the bank could take my home and resell it immediately for profit. Would I still owe all that tax?
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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If the bank forecloses and sells they are forgiving your debt, and taking back your house. What they do with it after that is up to them. Your mortgage amount would be considered 1099 taxable income to the IRS and you would have to add that to your other income at tax time and probably owe a pretty good sum, but that depends on your other income amount, dependents and other deductions. If the bank sells fior a profit good for them, it's their house at that point, so they have profited from your foreclosure which is unusual with most foreclosures being homes under water.
If the house is worth more than you owe and it's currently on the market and you can't sell it, you need to lower your price. Making a little profit yourself is a lot better than having a foreclosure on your record for a number of years and owing the taxes you're going to have to pay.
Have you not run your numbers? A house priced low will welcome investors and possibly cash buyers who can close quickly.
You only owe taxes on the amount the bank writes off, so if the house is worth more than you owe, you may not have any tax liability. However, I'm not 100% sure if the amount they go by is the amount due on the loan, or the total cost to the bank, which could include tens of thousands in foreclosure expenses.
So say the house is worth $100k. Say you owe $90k, and the bank has $20k in foreclosure expenses. I'm not sure if you would then owe taxes on the $10k difference, which would total a couple thousandish.
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