If you can no longer afford your home, but do not want a foreclosure on your credit report, sometimes a lender will agree to a deed-in-lieu. A deed-in-lieu basically means you return the home to the lender, and the lender agrees not to pursue a foreclosure. Although this deceases the impact giving up your home will have on your credit report, it can create a tax liability. The type of tax liability will depend on the type of mortgage loan and if the home is resold at a profit or a loss.
Instructions
- 1
Check your loan type. There are two types of loans: recourse and non-recourse. This information is located in your original loan documents. A recourse loan means the lender can hold you financially responsible for any shortfall the lender experiences when it sells the home. A non-recourse loan means once the lender has accepted the home through deed-in-lieu, your financial obligation to the bank is satisfied.
2Examine the Form 1099-A or Form 1099-C you received from the bank. This form will indicate any amount that the IRS could consider taxable. In the event of a shortfall, this is the amount which is taxable. If the loan was non-recourse and the home sold for more than what was owed, this amount is taxable.
3Complete Form 982 - Reduction of Tax Attributes Due to Discharge Indebtedness. The Mortgage Debt Relief Act of 2007 allows a taxpayer to have any taxable income that resulted from a foreclosure or deed-in-lieu excluded from tax liability. Complete the entire form and submit it with your tax return.
Australian Taxation Office
www.ato.gov.auTax information for individuals, Companies and organisations, from the Tax Department of the Australian Federal Government.
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