Profile picture for Walk Away

Deed In Lieu tax obligations ?

Under the Mortgage Forgiveness Debt Relief Act, what tax obligations apply for a deed in lieu ? An RE attorney told me there is no tax on a forclosure through December 2012 .
  • August 21 2011 - US
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Answers (1)

Profile picture for shasta_steve
The simple answer would be your attorney is is right.  A deed in, foreclosure and short sale are all treated the same as far as taxes. 

What I would worry about is just how long it takes the mortgage company to give you a deed in lieu and just when they actually forgive or write off the debt.  I don't know anything about your state's laws but I am going to assume that it is a recourse state.  It could very well take over a year for the foreclosure or deed in lieu to happen.  If it goes past the end of 2012 you may very well be out of luck.   Another thing I am almost certain about is the debt is considered taxable when the mortgage company actually sends out the 1099C form.  I do not believe this is always the actual date of the foreclosure or deed in lieu.  It could very well be later. 

Now if your loan were non-recourse you would have nothing to worry about and I am not 100% sure you will have problems anyway but it may be something to ask you attorney and most importantly a good CPA.   It would suck to think you covered all your bases and then get a nasty tax bill. 
  • August 21 2011
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