Paying taxes on deed-in-lieu?

[findinganswers]

Hello! I was just wondering if anyone knew what the tax obligations are for someone who goes through with a deed-in-lieu. For example, if I deed my house back to the bank, will I end up paying taxes on the amount I still owed to the bank? I still owe $240,000. So if I go through with a deed-in-lieu, will I have to pay taxes on that $240,000 as if it was the amount I gained through the sale of the house? Like a capital gains tax? Thanks...

[Jnazareno]

Hello! I was just wondering if anyone knew what the tax obligations are for someone who goes through with a deed-in-lieu. For example, if I deed my house back to the bank, will I end up paying taxes on the amount I still owed to the bank? I still owe $240,000. So if I go through with a deed-in-lieu, will I have to pay taxes on that $240,000 as if it was the amount I gained through the sale of the house? Like a capital gains tax? Thanks...

do you have no equity or significant equity on your property ? and what state?

Some general info :
http://www.google.com/search?sourcei...ed%2din%2dlieu

[CafeMonkey]

Technically, the bank can 1099 you for the deficiency. Though, they generally overlook it.

I've also been told that if you get one, you can challenge it in court, and most of the time it gets thrown out.

[findinganswers]

No, I don't have any equity in the house-- it has been an interest-only mortgage, and so I haven't paid down my equity at all. I'm in MA. Any thoughts on my tax obligations? Thanks for the comments so far. When referring to the 1099, does that mean I may be taxed on the entire $240,000? Should I ask the bank if they're going to submit a 1099 if I get approved for the deed-in-lieu?

Also, say the bank doesn't accept my deed-in-lieu application. Does anyone know if I can prepare a quitclaim deed deeding the house back to the bank, even if they say no to the deed-in-lieu? Then the bank would have all rights to the house... would I still be responsible for the loan? And if I am, would my only option be to not pay it and therefore be foreclosed upon, or, since I already gave the deed back to the bank, would it still be a deed-in-lieu of foreclosure? Thanks very much....

[Jnazareno]

After the borrower defaults on the mortgage, the lender may recover possession of the property by: 1) obtaining a court order; 2) entering the property peaceably; and 3) by proper consent of the buyer. If the lender maintains possession peaceably for three years from the date of possession, the borrower loses all rights of redemption.

I believe Deed in Lieu is like a quitclaim deed for the banks (might be wrong).if they refused youd dil, ya pretty much you have the responsibility for the loan. good thing MA doesnt allow deficiency judgments.

The best bet is to call the bank and follow up on the application you submitted.

[Welcomehomenevada]

This is a bit of a delayed response, perhaps it will be helpful. You can look at deed in lieu like a volutary repossession. Just like a with car, if you can't make payments it may be adventageous for the lien holder to take possession.

I know of no tax consequenses related to deed-in-lieu. The 1099 from the bank comes into play mostly with shortsales. If the bank has agreed to take title to the property, you relenquished your rights and they assume all rights and responsibilty. I know of no situation where deed-in-lieu had financial consequences for the homeowner.

Is this thing done yet? How did/is it going?