We've Been 1099 for a Foreclosure

Updated on January 24, 2012
K.G. asks from Fort Wayne, IN
7 answers

Ok who here has been foreclosed on for whatever reason. And then was 1099 for it (which I expected) but then the bank over inflated the value of the home against the principle of the loan. did the bank come after you for the money years later? What about the IRS were you dinged pretty bad for the value of something that you did not even own or received monies for? We do have a tax adviser but I am just trying to get a perspective here. this is the break down:

Home loan: 96,602
Home value 106,805 (joke, it was appraised at 42,000 back in 2010) and the city is being taken over by the state so there is no way that, that home apperciated by 2x in a year.

Please only people who have gone through this please respond, I would like to know what I am in for I am aware of the tax part I just want to know how it shook out for you in the end.

Can we make an argument with the bank over this? the home is no way valued that high. ALso to get back to my ? I need to know how it played out for you, I guess I am just a little nervous about having to pay thousands of $$$ on money we dont have, Us having to walk away from our home had to do with following the job, we did not want to walk away but we had no choice, we tried short sale, renting it did not work out. TIA

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So What Happened?

@ JoW I care bc the bank has it marked that we are responsible for the loan which means it has not been forgiven I need to know if they will come after us for the value.

we had a bank appraisal done is 09' and it was appraised for 45g now on zillow and homevalue it is 17-28g.

More Answers


answers from St. Louis on

You are only taxed on the loan value so why do you care how much they valued the home at? You had income of 96,602 dollars, that is all the IRS cares about.

http://www.irs.gov/newsroom/article/0,,id=174034,00.html Read this bit. It looks like none of it is taxable. Point number 3 has the calculations you need.

Just make sure you have a good cup of coffee, that website can put anyone to sleep. :)

This is from the mortgage forgiveness debt relief act of 2007 so I doubt Obama had much to do with it since he wasn't in office.

4 moms found this helpful


answers from Dallas on

If the home has been your primary residence for at least 3-5years, then there is a way to write off the amount owed for taxes from this 1099. There was a program that Obama put into effect that allows for this. Most CPAs don't know about it, but it is out there and you need to find a CPA who has dealt with foreclosures and short sales to navigate the paperwork.
I know about it because my step mom had a short sale and got to write off the 1099 thanks to this new rule.

3 moms found this helpful


answers from Boston on

My understanding is that if you are issued a 1099-C, the bank has, in fact, written off the debt. They cannot pursue you for the amount owed ("judgment of deficiency") AND write the debt off, which is what triggers the issuance of the 1099. You can only receive the 1099-C after the bank has thrown up it's hands and had told the IRS that your loan is a lost cause, permitting them to write off 35% of the loss...the bank has to issue the 1099-C to close their side of the deal with the IRS and it doesn't necessarily mean that you will be taxed on the income.

If the foreclosure was of your primary residence and you meet the requirements of the Mortgage Debt Relief Act of 2007, you will simply attach a form called a 982 and report the amount forgiven and will not pay tax on it.

If your lender's documentation of the inflated home value is making the case that the value of the home was higher than your balance and therefore you don't qualify for the Mortgage Debt Relief Act of 2007 then I think you would have to have the home's value amended, but talk to your tax adviser first about that as it may be irrelevant. In the recent foreclosures that I know of (a couple of close friends) this was pretty easy and painless and they had no tax liability nor was the bank able to come after them for the loss later.

I'm curious to know how the inflated value plays into the 1099-C calculation. If the home was sold at auction, the loss amount should be the difference between your payoff amount and the sale price. If it hasn't sold, then it should just be your payoff balance.

ETA: I assumed you had received a 1099-C. If you received a 1099-A, then it's a different ballgame as it does not mean that the lender has canceled the debt and you're correct, you have to use the 1099 info to calculate your your gain or loss. The gain or loss will be based on the smaller of the fair market value of the house or the outstanding loan balance, minus your basis (what you paid for the house). If the FMV is as low as you say it is, then your gain/loss should be a loss that would incur no tax liability. If the FMV that the bank reported is used, however, then you'd be working with the outstanding balance minus your basis and there would be a net gain that could potentially be taxable if you don't otherwise qualify for the appropriate exclusion. In this case, contact your tax professional immediately to find out what to do. In the foreclosures that I know of, all had FMVs lower than the outstanding loan balance so this wasn't an issue.

2 moms found this helpful


answers from San Diego on

What kind of appraisal are you talking about? The city and county appraises properties much lower than what the market value is. In fact, it's often half of the real market value. That's why I am saying that because of the figures you are throwing out there.

2 moms found this helpful


answers from Charlotte on

I defer to Jo on this because she is very knowledgable about taxes, but I wonder if you could force the bank to amend that 1099 over the home value of the house.

I don't know the implications, but I don't blame you for being upset about it.


1 mom found this helpful


answers from Washington DC on

@Ashley- Obama didn't do the tax - it's from 2007 - BEFORE Obama took office. It's a Bush thing....

K. - are you talking about property tax appraisals or actual home value? If you received a 1099 - that amount is the ONLY amount the IRS cares about.

You can call the IRS - or go to their website - http://www.irs.gov - go to the far left tab labeled "personal" and see if you can find what you are looking for there. The 800 will get you directly with an IRS agent who can help you. Yes, you will end up on hold for a bit - but it is worth it. The IRS isn't a bunch of "pricks" out to get you. They are actually very kind! :) Yes, you read that right!

If you don't understand why you are getting this - they will help you understand it. this is all for "free"....you can pay an accountant to look at your taxes and help you as well.

1 mom found this helpful


answers from Albuquerque on

I haven't gone through a foreclosure but I did sell my house on a short sale in 2010 and recieved a 1099 (C, I think). It was a cancellation of debt. I did the taxes through a special H&R block (the regular office referred us) and didn't have anything added as income. As long as you've lived in the house for 2 years of five preceding the foreclosure, I think you should be able to do that. Good luck!

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