Cancellation of Debt

I was the victim of a broker/appraiser scam in Florida. The home that I was stuck with was never my primary residence. I defaulted and the property has been foreclosed. Is the mortgage/note recourse or non-recourse debt? According to the IRS website, non-recourse debt which has been cancelled is NOT income. I do not have any judgment or liability beyond the foreclosure. The debt cancelled was about 260,000 and the FMV of the property was 112,000.

Asked on June 4, 2009 under Real Estate Law, Florida

Answers:

B. B., Member, New Jersey Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

The tax code -- and the IRS regulations based on the code -- are not for the faint of heart, even among lawyers.  A question like this can't be answered reliably, without professional review of all the facts.  You're looking at a possible net "gain" of nearly $150,000, and the taxes on that are what's at stake here.

And, of course, there are penalties and interest on the taxes, if the IRS comes for them after the return is filed.  You need to have the full consultation, with a CPA or a tax lawyer.  One place to find qualified attorneys is our website, http://attorneypages.com


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