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Foreclosure and auction sale proceeds

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Cirderf

Junior Member
What is the name of your state (only U.S. law)? California

House was foreclosed on and auctioned off. then received a 1099-A form from the bank. stating :
Balance of Principal = $116,000 ( Approximate)
Fair market value of property = $97,000 ( approximate)
box checked that Debtor was responsible for repayment of debt.
Loan was completely satisfied through the sale and residual is still due to me. ( Approx $6,000)

But the actual transaction was as follows.
Home sold at auction for $155,000
actual balance including interest and fees was $139,000.
$147,000 was taken to cover all expenses with the foreclosure company and pay off loan.
Now $6,000 is due back to me after secondary attorney fees after funds were deposited in the county clerks office from the sale.

I am now being warned that from this transaction the following could be my responsibility with the IRS if not done correctly because of bank filing to the IRS.
$155,000 purchase price.
$116,000 owed on loan
$39,000 difference is now considered income and can be tax liable. Even though most of the money was taken by the bank.
I cannot claim interest paid , due to the loan being defaulted on.

I am trying to get a straight answer on this I seem not to get a straight answer from anyone.

Just seeking advise

Fred
 


LdiJ

Senior Member
What is the name of your state (only U.S. law)? California

House was foreclosed on and auctioned off. then received a 1099-A form from the bank. stating :
Balance of Principal = $116,000 ( Approximate)
Fair market value of property = $97,000 ( approximate)
box checked that Debtor was responsible for repayment of debt.
Loan was completely satisfied through the sale and residual is still due to me. ( Approx $6,000)

But the actual transaction was as follows.
Home sold at auction for $155,000
actual balance including interest and fees was $139,000.
$147,000 was taken to cover all expenses with the foreclosure company and pay off loan.
Now $6,000 is due back to me after secondary attorney fees after funds were deposited in the county clerks office from the sale.

I am now being warned that from this transaction the following could be my responsibility with the IRS if not done correctly because of bank filing to the IRS.
$155,000 purchase price.
$116,000 owed on loan
$39,000 difference is now considered income and can be tax liable. Even though most of the money was taken by the bank.
I cannot claim interest paid , due to the loan being defaulted on.

I am trying to get a straight answer on this I seem not to get a straight answer from anyone.

Just seeking advise

Fred

If this home was your principal residence, you are going to owe nothing. You will merely report the sale of your principal residence.

If this home was not your principal residence, you will only owe capital gains tax on your profit from the "sale" (because this foreclosure would be considered to be a sale).

You profit is 155,000 sales price, minus 116,000 basis, minus 8000.00 selling expenses (total payoff 147,000 minus mortgage balance 139,000) = 31,000 capital gain x 15% capital gains tax rate = 4650.00 capital gains tax. It may be higher if this was an investment property and you had depreciation allowed or allowable.

And yes, you CAN deduct the interest because in the end, you actually PAID the interest because the mortgage, interest and expenses were paid off in full by the proceeds from the sale of the house.

You will put this transaction on Schedule D. The most that will get reported to the IRS is the sale of the house at 155,000. You will not get a 1099-C (cancellation of debt) because the mortgage was paid off in full.

Oops...I just realized that the 116,000 was NOT your basis. Do that same equation substituting your actual basis in the home (what you paid for it plus improvements)
 
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tranquility

Senior Member
The mortgage is above what is protected by the mortgage forgiveness act. ( More than purchase price.) Also, I am uncertain as to if the act would apply without some research.

I think there needs an actual calculation under the law. I have done a lot of these and the result is not always as expected.

(Am not in the mood to do the calc. This is exactly what I do and am not feeling a desire to do it now for free.)
 

LdiJ

Senior Member
The mortgage is above what is protected by the mortgage forgiveness act. ( More than purchase price.) Also, I am uncertain as to if the act would apply without some research.

I think there needs an actual calculation under the law. I have done a lot of these and the result is not always as expected.

(Am not in the mood to do the calc. This is exactly what I do and am not feeling a desire to do it now for free.)

Actually we don't know if the mortgage is more than the purchase price. OP never gave us the purchase price. I misunderstood the original post. Improvements factor in as well.

Op needs a tax professional.
 

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