Help For A Friend Who Recived 1099-A After Foreclosure
A friend of mine recieved a 1099-A after being foreclosed on in Florida.
Line 2 (balance of principal outstanding) reads as 202k
Line 4 (fair market value of property) reads as 218k
Also as an FYI the home was purchased for 240k three years prior (he made a down payment).
From what I have found online it appears he doesnt have to pay taxes on it but he does have to include as income. Is this correct? And most importantly, can still he be pursued for a deficiency judgment if he recieved a 1099-A? I cant find a clear answer on this and I have seen contradicting answers on that.
[ Edited by ndnole on Date 01/30/2010 ]
I believe this type of income is currently not enforced by the IRS. I found the following on another site and have seen it numerous other places.
"The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17."