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Originally Posted by lensplay  . |
filed for bankruptcy in 2009 which included several investment condos in Florida. As part of the bankruptcy the condos were surrendered. The banks have since foreclosed on all the properties except one. The last condo that I still hold title to I am are considering doing a quitclaim deed and signing it over to the condo association for past due assessments. Is there any tax liability if I do the quitclaim deed?========>> to the previous post, your condo may be "in foreclosure" in that the mortgage hasn't been paid for some time. However, it is taking banks months and more often years to foreclose after you quit paying the mortgage. If y ou ALSO quit paying the dues and the HOA takes no action, it could be looking at several years of dues going unpaid.
The flip side of that is that you do not always have the means to pay what you owe, so even if the HOA gets a judgment, it's often not collectible - at least in the short term. Taking title to the unit which is still subject to the mortgage is one way the HOA can try to "stop the bleeding" by getting it rented out and generating some income until the bank forecloses. You should probably consult with a lawyer in your local area before signing any legal documents so that you can be sure to fully understand what you're agreeing to.However, as you can see, a quitclaim deed merely transfers the claim you, as a a prior owner, have on the property to someone else, in this case the HOA. It does not transfer responsibility, though, for any liabilities against the property such as tax liens or mortgage loans. If a lien was placed on the property before the quitclaim, then both owners are responsible for settling the lien and any penalties from it. If you, as a grantor, signed the mortgage note,yu are still liable for paying back the note and may also continue taking interest paid on the note as a deduction on your federal income tax. Property tax, however, is the responsibility of the owner of the property. So, while you are still liable for any outstanding property tax owed, upon filing the quitclaim the you are no longer liable for any future property tax on the home.
The value of the condo is 100K.
The association is also in the process of foreclosing on the property. If the forclosure goes through, would there be any tax liabilities? I am trying to figure out if I should do the quitclaim deed or let the condo continue in foreclosure======>Apart from the impact on your credit, a foreclosure can be costly tax wise if you're not prepared. For taxpayers realizing foreclosures on personal residences, the law was changed so that in most cases you will not have to recognize and pay tax on forgiven debt. These rules don't apply if the property is a rental foreclosure.Assuming you owe the full $520k and the home is valued at $270k tax wise, you stand to gain $250k in the rental foreclosure. When you borrow money, you don't realize income for tax purposes, based on the theory that you will have to repay it. When you don't repay the debt and it is forgiven by the lender, you realize a gain for taxes. A lender will usually forgive the debt if there is no chance of collection. Part of the lender's determination is based on your assets exempt and not exempt from their claims. When it comes to taxes, the IRS doesn't see it that way. Your exempt assets may end up causing you to pay tax on forgiven debt. A taxpayer who is not in bankruptcy can exclude gain on forgiven debt if he is insolvent. Insolvency means the extent to which your liabilities, including the forgiven debt, exceed your assets. However, unlike bankruptcy, the IRS is measuring insolvency by including exempt assets.
Assume your home and mortgage are worth the same and you have no other assets. If your rental goes into foreclosure, you may have a $250k gain, but the insolvency exception will allow you to avoid recognizing and paying tax on that gain. Although the creditor won't go after you, the IRS will. Your best solution to avoid the reach of the IRS would be to go into bankruptcy prior to the foreclosure.
You had mentioned this topic in your post but I wanted to clarify some of the facts, since the original bank debt on the property was discharged in bankruptcy. My question is related to post bankruptcy debt resulting from unpaid hoa dues.
I am trying to determine the best strategy that would help minimize negative tax consequences - either 1) deed in lieu to hoa, 2) pay off the balance, or 3) wait for property to go to foreclosure. Here are some additional details regarding our issue:==>>I am not sure I guess it depends; In many states, the HOA lien has priority over all liens and encumbrances recorded after the recordation of the declaration of CC&Rs except a first mortgage or deed of trust that was recorded before the date the assessment became delinquent. As a result, an HOA foreclosure usually will not eliminate a first mortgage lien in a foreclosure. Often, junior mortgages or liens will be wiped out in an HOA foreclosure, but this too depends on state law. Sometimes the mortgage lender will pay off the HOA dues to stop the HOA foreclosure and proceed with its own foreclosure. This cost will then be added to the total debt due on the delinquent mortgage. If a mortgage lien is superior to an HOA lien, the mortgage foreclosure will wipe out the HOA lien. However, the underlying debt for the past due HOA assessments will remain. HOA assessments are a personal liability of the person who owns the home at the time the assessments are due; the HOA can continue trying to collect the past due HOA assessments through methods other than foreclosure. Once the foreclosure is complete and title is granted to a new owner, that new owner will be responsible for the payment of HOA assessments from that day forward.
In certain states, some HOA liens are granted senior lien positions, even over a first mortgage or deed of trust, under certain circumstances. These HOA liens are called ?super liens? and cannot be wiped out in a lender?s foreclosure. In Colorado, for example, HOAs have the right to a super lien to the extent of six months? worth of delinquent assessments. Not all states have super lien statutes, and those that do exist vary from state to state.
The property was part of a chapter 7 bankruptcy in 2009. The bank debt on the property was discharged at bankruptcy. My wife is the only person on the deed. The bank special servicer still sends us notices about the payments (even though we are not required to pay them) showing a remaining loan amount of 132K. The bank has been paying the real estate taxes so there is no issue there.The market value of the property is about 145K. We stopped reporting the property on our tax return in 2010, even though there was a loss carry forward available.===>Unless the condo was used as a rental pty,you can not c/f the loss.
Post 2009 bankruptcy the property was not a rental and it was never our primary residence. However, a family member has been living there for the past 5 years. Last year he did start paying me money ($900 per month) and part of it was being used to pay the monthly assessments ($311). ==>then the pty was used as rental homeIf your family member lives in your second home and pays a fair-market value for rent, the house is considered a rental unit. The IRS considers fair-market value to be the rental amount you would charge a non-relative. To determine a fair-market value, compare rents for similar houses in your area. If your relative pays substantially less than what the market dictates, your second home is not a rental in the eyes of the IRS. If the property qualifies as a rental, deduct the mortgage interest on your second home on IRS Schedule E.
I can prove it was a rental for 2016 and 2017 if needed. In addition to the monthly HOA of $311, in 2016 we also had to settle with the 2 unit owners below for water damage caused by our unit's exploding water heater for approximately $7,000.==>So as said above, Unless the condo was used as a rental pty,you can not c/f the loss.
If you actively participate in running the rental, you can write off up to $25k in losses against your non-rental income. You have to own at least 10 percent of the property and make management decisions such as approving new tenants, pricing repairs or setting the terms for the lease. Tax laws reduce the amount of the write-off if you have a high modified adjusted gross income.
Currently the condo association is foreclosing on the property, claiming 27K in unpaid assessments/interest/legal fees.The condo association is willing to do a deed in lieu of foreclosure in exchange for waiving the 27K balance. If we agree to the deed in lieu, should we expect the condo association to issue a 1099 cancellation of debt for the 27k? =====> A deed-in-lieu has many of the same effects of a full foreclosure including damaging your credit report, limiting your ability to get a future mortgage and a larger tax debt in the subsequent year. Lenders issue 1099-Cs for canceled debt owed on the loan. Depending on your state of residence and type of loan, you may not receive a 1099-C.
If so, are we able to offset this 2017 1099 income with any of the 2016 expenses mentioned above?=====>yes you need to file SCh E of 1040 to claim rental home expenses and income. If the canceled debt relates to your rental property, you report it on Sch E as income Because it's rental income, you have the option to subtract your rental losses against it without a problem.as said you can deduct $25k in rental losses against other income if you actively manage the property. Vetting tenants, advertising vacancies and calling repair crews are all signs you're active. When a rental house is foreclosed on, the IRS views it as a sale. This requires you to report the gain or loss you incur on your tax return. However, the foreclosure increases the complexity of the transaction for tax reporting purposes since you must consider other factors, such as whether you are still responsible for any remaining mortgage debt after the bank takes possession of the rental house In a normal sale transaction, the amount you realize is just another name for the sales price. However, in a foreclosure, the amount depends on whether you are responsible for the remaining mortgage debt or not. If you aren?t, then the amount you realize is equal to the remaining mortgage balance that exists when the bank forecloses. But if you are responsible for paying the remaining balance, then the amount you realize is equal to the fair market value of the house when it?s foreclosed on.ALSO if the bank cancels your debt, meaning you no longer need to pay it back, then any amount in excess of the fair market value of the house is part of your ordinary taxable income. This ordinary income is separate from the gain or loss you calculate on the foreclosure of the home. Once you determine the amount you realize on the foreclosure, you simply subtract your tax basis from that amount to arrive at your gain or loss. The IRS requires you to report the foreclosure and the resulting gain or loss on a Form 4797. If the foreclosure results in a long-term capital gain, then you also need to include the amount on a Sch D attachment to your personal tax return/ so yiu meed [rofessio al help form an Enrolled Agent or a CPA doing taxes in your local area for more accurate advice.
We are also evaluating paying off the 27K and keeping the property as a rental until the bank finally forecloses. If we pay the 27K to the HOA, how is that payment treated for tax purposes? Can the payoff be used as a rental expense?===>once you pay back then you can claim the expenses on your Sch E of 1040 as rental expenses AS said aslongas the unit was usedf as a rental home..
We are concerned that if the property goes to foreclosure for the HOA lien of 27K, the property will not sell for the outstanding $27K balance, resulting in a judgment. If we must pay off the judgment after the foreclosure, how would that payment be treated for tax purposes? Would this be a non-deductible expense, or can this be used to offset any type of income?========> A quitclaim is a type of property deed used to transfer ownership in your property. It is one of the easiest property deeds to use and file, and rarely needs the services or advice of a lawyer. On the other hand, you, as a quitclaim filer, may wish to consult with a local tax accountant,an Enrolled Agent or a CPA doing taxes, depending on your circumstances, since filing a quitclaim could have tax implications. I practice in OR State, so you should take this information with a grain of salt and hopefully an attorney in FL state where the condo is located will respond as well.
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