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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > 1099 for foreclosure
Expert: John Kirk, CPA
Date: 9/15/2008
Subject: 1099 for foreclosure
Question
Hi John,
My husband has a mortgage of $470,000 home equity loan of $60,000 and the house is about to go into foreclosure. He has a federal tax lien of $170,000 on the house. The fair market value of the house is approximately $400,000. Will he get a 1099 and be liable for federal income tax on $130,000? or $130,000 plus the $170,000. He is considering filing bankruptcy which we have been informed will forgive the taxes (over 8 years old), and the debt on the home, but nothing verified.
Any help or suggestions where to turn would be greatly appreciated.
Thanks
Answer
Filing for bankruptcy will relieve you of any taxes on the forgiveness of debt which is dismissed under bankruptcy. However this must be done before the foreclosure is filed. If the foreclosure occurs before bankruptcy the full $300,000 is considered debt forgiveness, and you can exclude the $130,000 of mortgage debt provided that the $60,000 equity loan was used to improve the property. Whether the tax lien is dismissed in bankruptcy or in foreclosure is a matter for an attorney to address.
John Kirk, CPA
www.johnkirkcpa.com
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