How does foreclosure affect filing a tax return?

[desertgrl74]

I have not foreclosed yet, so I don't see that it would be an issue. But, once foreclosure is final, and you file your return does anyone know if you have to do anything pertaining to your foreclosure?

I did pay taxes for 4-5 months last year, so I would assume they would send me the tax document. Anyone have comments on this?

[justbroke]

Yes, you do. It's considered a sale or disposition of the property. There are different rules regarding capital gains versus loses depending on whether the property was as business, investment, or personal (primary residence) property.

The lender should issue you a 1099-A (Acquisition) or a 1099-C (Cancellation of Debt) after the foreclosure. This may occur shortly thereafter, or, in the case that it just goes to REO Status (bank owned), it could take some time before the lender "actually" sells it and figures out any loss or gain. Fair Market Value (FMV) calculations are also a pain with these as well.

Once you receive a 1099-A/C, you really really really should seek professional tax advice. There are implications if there's a realized gain whether primary residence or not. Losses are different as well. If it was an investment, you have recapture issues. In some cases, you can use the $250K exemption on gains if it was your primary residence and you meet other qualifications.

If this is all Greek to you... you really really really need a professional tax preparer or CPA to handle this for you.

[scsurfer]

Under current law, when principal residence mortgage debt is forgiven in 2007 through 2012, it will usually be tax-free.

More info here...

[Rob517]

If I may jump in here, I am awaiting discharge on a Ch. 7 in which I surrendered my home. Currently it has not sold at auction and is still in my name. I have no idea when or if it will sell at auction. The mortgage company just sent me a letter stating they have decided not to pay the taxes or insurance as of February. So when can I file my taxes? I paid on the home for 6 months last year so I assume they have to send me a tax form, like I used to get, correct? Also, Can the city come after me for unpaid property taxes after discharge? Currently the taxes are paid in full and nothing is due until summer.

Thanks.