Will I owe taxes if I settle on a2nd mortgage for about 10% of what is owed?

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Will I owe taxes if I settle on a2nd mortgage for about 10% of what is owed?

I turned over my home to the 1st mortgagee about 3 years ago but still owe on the 2nd mortgage. They offered a settlement of $11,000 out of a $100,000 loan. Will I have to pay taxes on the $90,000?

Asked on February 29, 2012 under Real Estate Law, California

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 8 years ago | Contributor

Potentially you might be responsible for income tax on the $90,000 that you are writing about under the theory of forgiveness of debt at the state level, but perhaps not at the federal level under exisitng federal law where you lost your home in a foreclosure where there was a second trust deed in effect.

I recommend that you consult with a tax attorney who practices in the area of real estate as well to assist you in resolving the dispute that you have with the second mortgage holder so it can be resolved on best terms for you and less potential tax ramifications at the federal and state level.


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