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Deed in lieu no income

Forum|Forum|7 years ago
June 6, 2019
10 replies
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I read a response that stated "With a deed in lieu of foreclosure, any forgiven loan amount that is more than the value of the property will be considered taxable income and you should expect to receive a form 1099-C for cancellation of debt"

We have the opposite, the value of the property is MORE than the foreclosure. It does not seem using the reasons on form 982 are applicable to us. I've been told by numerous people that there should be no taxes owed since we had no income but TT is calculating that we owe taxes on the entire foreclosed amount. At this point I'm not sure what to do.

TurboTax Premier Online

Best answer by Anita01

In your case,since this was recourse debt,you are considered to have sold the property for the Fair Market value of the property as shown on the 1099-C. The difference between the Fair Market value on the 1099-C and your cost basis is considered a capital gain. You would enter all this as the sale of your home, and can exclude gain on up to $500,000 for a married joint couple,if you owned and lived in the house for 2 years prior to the "sale". Keep the 1099-C for future reference but enter all the amounts under Sale of Home.

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gmhigbeeAuthor

No excess monies were sent to us. A simple transfer of the deed and yes it was our primary

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Anita01

Employee

You would not fill out a 982 for this. Doesn't the mortgage company plan to send you any excess over loan balance when they sell the property? was this a primary residence?

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Anita01

Employee

Is there a checkmark in Box 5?

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Anita01

Employee

I'm assuming you received a 1099-C?

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gmhigbeeAuthor

Yes 1099C was received

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Anita01

Employee

Box 5 checked?

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gmhigbeeAuthor

Yes box 5 was marked because the lender told me that we at one time we were financially responsible for the loan. No money transferred hands

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Anita01

Employee

thanks, will come back to finish answer in a short while

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Anita01

Employee

deleted

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Anita01Answer

Employee

In your case,since this was recourse debt,you are considered to have sold the property for the Fair Market value of the property as shown on the 1099-C. The difference between the Fair Market value on the 1099-C and your cost basis is considered a capital gain. You would enter all this as the sale of your home, and can exclude gain on up to $500,000 for a married joint couple,if you owned and lived in the house for 2 years prior to the "sale". Keep the 1099-C for future reference but enter all the amounts under Sale of Home.

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gmhigbeeAuthor

Ok great, thank you for that. I have now entered it as a sale and TT is showing the taxable portion of the difference of 400,000 and 331,000 I had previously filled in the Misc income cancellation of debt portion for 1099C in TT. When I go to edit there is no option for me not to include it. How do I work around that?