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Unfortunately, you can’t walk away from the IRS like you can a bank. So, all of the people who thought they could just walk away from their home and its debt are in for a rude surprise. Because it may take a while for the bank to sell the home, there could be a significant delay between the time a person walks away from a mortgage and when the 1099 is sent out with the income surprise for the “walker.”

My accountant told me that you are going to receive an IRS Form 1099 in the amount of $75,000, the difference between the $200,000 mortgage and the $125,000 the bank got for selling the house. This is taxable income.

Also, according to my accountant, there is an “offsetting” positive. The $75,000 in 1099 income can be claimed as a loss on Schedule D. But, keep in mind that net capital losses are limited to $3,000 per year. So, unless you have other capital gains to balance off the rest of the $75,000 loss, you will owe taxes on ordinary income of $72,000 ($75,000 minus $3,000).

by RXH in Debt

14 years ago. Rating: 7
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BA-loney! Nothing but a rumor! You can't get blood out of a turnip, and the government knows this. That's why they passed "The Mortgage Forgiveness Debt Relief Act of 2007", which applies to borrowers who went into forclosure and lost money from 2007 til 2012. The limit is $1 million per taxpayer.

14 years ago. Rating: 1
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