Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
Tax loss on loss of home?
Posted by: chek101, April 23, 2017 06:56PM
I purchased a home with my son in 2007. I bought the house for 400 hundred thousand dollars. I put down 100 thousand dollars and got a mortgage for 300 thousand dollars.

In 2015 my son died and a week later I called the mtg company and discussed the legal alternatives as I could not afford to pay the mortgage payments without my him. I decided to turn the house over to the mortgage company by doing a "Deed in Lieu" as had been discussed with them.

I received a 1099-C "cancellation of Debt" tax form that shows

box 2 as amount of debt discharged as approx 18 thousand dollars

box 3 shows no interest

box 5 is checked which means I'm liable for the debt.

The fair market value of the property per the 1099-c is listed as $285,00.00. The mortgage amount owed at the time the "Deed of Lieu" was processed was 304,000.00.

Question: can I take a loss for the 100 thousand I put down on the house? And will I have to pay the difference between the property value and the discharged amount list in 2? Not sure I understand this.

Thank you for any help you can give me on this.

Re: Tax loss on loss of home?
Posted by: triad, April 24, 2017 06:30AM
Can you take the loss? No. This was considered personal use.

The cancelled debt is separate from the loss. Unless you can show that this was a) your personal residence or that b) you were insolvent, you have to include this as income.

If this was your residence and the the cancelled debt was in 2015 or 2016, see form 982 for how to exclude it.

Question, how was the mortgage still owed $304,000? Was this the original mortgage? Was it ever refinanced? If yes, was any money cashed out?

Re: Tax loss on loss of home?
Posted by: chek101, April 24, 2017 03:31PM
My son was an alcoholic, though when he passed away he had stopped drinking during the last 4 years of his life and was doing just great!! But when he was drinking he had gotten into trouble with drinking and driving a few times with the last time involving him crashing my car through somebody's backyard destroying their fence. For that, he was sentenced to a year in jail. He served 10 months. When he got out that is when he finally stopped drinking.

However the loss of his income was a problem when he was away. I called the mtg company right away and told them I could not meet the next month's mtg payment. They suggested I refi. Which I did. I applied for the Obama plan. What a fiasco that was! The mtg company strung me along for almost 2 years until it wound up in Supreme court for fore-closure. The outcome of that was I finally got the refi and my house was saved.

My son lost his license to practice for a year after he got out of jail and so naturally no income from him. So...that is why I still owe that amount. I received no money from the refi. Just a lot of worry and aggravation for almost 2 yrs!!

The hundred thousand I put down on the house was the last of my money after selling the co-op I had been living in prior to buying the house my son and I shared. We did a lot of work on that house! New driveway, roof, floors it's only worth 285,000? I paid 400 for it! What's with that? Not to mention the house is in a desired neighborhood.

Why do I feel like I was cheated? Now I live in a senior complex (I am 76) which I hate, and that is about that. Seems to me something is wrong when you pay a mtg for 7 yrs, invest 100 thousand, lose your home (and your son) then after that wind up with nothing and some paperwork saying I am responsible for money due the mtg least I think that's what it means which is why I am here asking about it.

So my question to you (as I don't understand your answer) is "do I have to pay the mtg company any more money?"

Thank you for taking the time to reply to me. There is no one else for me to ask.

Re: Tax loss on loss of home?
Posted by: MadDog, April 25, 2017 12:47AM
Don't know what state you live in but you make want to check state law to see if you really were liable for any shortfall on the mortgage when the house was sold. 1099 forms are often wrong in how they classify (box 5) debt. If the bank's only recourse against you was to take the house it is not COD income but is instead a deemed sale of the house for the amount of the debt, which creates a nondeductible loss. Finally, if any portion of the $304,000 is interest that could be deducted (perhaps as investment interest from your perspective) if paid, it is not part of the COD income. For example, if the principal is $285,000 and the accrued but unpaid interest $19,000, and you could justify a deduction of the interest if paid, then for purposes of computing COD income the debt and the FMV are identical and there is no COD income.

Re: Tax loss on loss of home?
Posted by: chek101, April 25, 2017 02:42AM
Well ok...of course I don't know what COD income is, and I guess it doesn't matter because I still don't understand the answer you gave me. Not your fault I had to work my whole life since I was 8 and couldn't get to school much. I am not stupid just unlearned.

Figures I live in New York where it's absolutely harsh living. But I do thank you for your time.

Live long and prosper!


Re: Tax loss on loss of home?
Posted by: DeeDee, April 25, 2017 05:17AM
COD=Cancellation of Debt

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