[cariejones]

I just want to know if I sign my house over to the bank and they sell it for less than what my mortgage is, do I have to pay taxes on that money as income? I live in MI.

[this8384]

If the bank sells it for less than your mortgage balance, then you need to pay the balance. How would signing over your house would give you income?

[cariejones]

If I sign it over then the bank seizes the property and I am clear of the debt. But the IRS see the difference between what I owe on my mortgage and what the house sold for as taxable income in some states and I wanted to know the circumstances around that.

[this8384]

It's only income if they sell the house for more than what you owe, not less. You're only liable if the bank leaves the house in your name. If the title is transferred into the bank's name, then any taxes would be need to be paid by the bank.

[ScottGem]

If the house sells for less than you owe and the lender FORGIVES the balance, then they would send a 1099 for the fogiven amount that you would have to pay taxes on. However, recent law forbids them from doing so.

[cariejones]

Scott,

I was reading up on that but it is kind of confusing. Do you know how I would go about making sure I'm not going to get taxed? Also, any idea what percentage it is?
Thanks!

[ScottGem]

I think the law is clear that the IRS cannot tax any forgiven difference. Prior to the law, the amount was considered taxable income and added to your taxable income on your return so it was taxed at whatever your tax bracket was. Of course, if the amount forgiven was significant, it could move you into a higher bracket.

[Fr_Chuck]

After the sell the house, normally they will just sue you for the differnece, but if they do forgive the difference, tax is no longer due on it, ** a new law passed this year.

[cariejones]

Ok so as long as the mortgage company forgives the difference, I am free and clear?

[ScottGem]

Until that law is repealed. Remember it was passed as a stopgap measure to protect homeowners caught in the current mortgage crisis. It may not be permanent.

[cariejones]

Hopefully it won't change beforehand, I will be turning my house over very soon. Thank you so much for your help!

[JudyKayTee]

It's only income if they sell the house for more than what you owe, not less. You're only liable if the bank leaves the house in your name. If the title is transferred into the bank's name, then any taxes would be need to be paid by the bank.

Could you quote a source? I thought it was the other way around - it's income if the bank sells for less, forgives the difference and sends you a 1099.

The bank makes the call.

[cariejones]

I read up on the laws and foreclosure proceeds etc and it is if the bank sells for less than what you have mortgaged.