[Vegas16]

First the Facts:

1. Borrower stopped paying the mortgage (both first and second mortgage) on his personal residence in January 2010, as the Lender (BoA) would not consider a short-sale unless there was a default.
2. Borrower marketed the property for short sale, and had the property under contract with a buyer as of the first week of February 2010 (for less than the balance of the first mortgage).
3. Lender sat on the short sale for months before approving it in September 2010, during which time no additional payments were made on the note.
4. Borrower had to pay $5K cash at closing to the Lender.
5. Proceeds from the actual sale were applied to the first mortgage, and the $5K cash was applied to the second mortgage.
6. Lender waived any right to pursue a deficiency action on both the first and second mortgages, and has reported the loans as "Paid In Full" or "Settled For Less than Full Amount" on Borrower's credit.

Now the Question:

Is the Borrower entitled to a tax deduction for mortgage interest paid between January 2010 and closing? Gut reaction is "No" because the interest was not paid in the conventional manner. However, while the interest was not paid between January and September 2010, it was arguably paid through the proceeds of the sale and/or the Borrower's cash contribution. Do short-seller's typically claim this deduction (or attempt to)?

[jfkIII]

Not sure, but I believe that amount forgiven by the bank must be claimed as income by the borrower.

[olecapt]

Originally Posted by jfkIII

Not sure, but I believe that amount forgiven by the bank must be claimed as income by the borrower.

Don't answer questions you don't understand...this is not a knock LV question...

You are of course wrong and irrelevant.

To the OP...good question. I suspect there is no known answer. Let me ponder a bit and see if I can find anything.

[jfkIII]

Originally Posted by olecapt

Don't answer questions you don't understand...this is not a knock LV question...

You are of course wrong and irrelevant.

To the OP...good question. I suspect there is no known answer. Let me ponder a bit and see if I can find anything.

Olecapt is right...I am not a tax accountant. Here's the IRS version on amounts forgiven...and their taxability:

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

[olecapt]

Originally Posted by jfkIII

Olecapt is right...I am not a tax accountant. Here's the IRS version on amounts forgiven...and their taxability:

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

Leave it alone. You do not understand the question.

[WestieJeff]

I'm not sure about the tax law, but I'd wait for the 1098 (home mortgage interest statement) and if it's not on there, then I definitely wouldn't deduct it since that will throw a red flag up when the IRS does it cross checking of amounts your claiming vs what they were reported.

[olecapt]

Originally Posted by WestieJeff

I'm not sure about the tax law, but I'd wait for the 1098 (home mortgage interest statement) and if it's not on there, then I definitely wouldn't deduct it since that will throw a red flag up when the IRS does it cross checking of amounts your claiming vs what they were reported.

Well I would declare an appropriate percentage of it and brazen it out. First off it may slide right through. Secondly if you do get nailed you may get a bright examiner who knows he does not want to invest the time this one will take. Third I expect you have a 50/50 chance of winning it. The argument is whether you are making a mortgage payment or buying off the bank...
So what...60% or better you get away with it?

Nothing ventured nothing gained.

This is when I miss my departed mother. Even in her dotage she could tell you what case law existed and what theories would be put forth. Best I can do is point out it is probably not resolved and will cost a bundle to do so.

[derek1268]

I am in a similar predicament. Chase Mortgage agreed to my short sale contract and then a few days later called me and said that if I didn't come to closing with $9k they were going to come after me for the deficiency balance. They agreed to accept $5k at closing in exchange for waiving the deficiency balance. Appears on the HUD 1 That they used my funds toward the closing costs, not principle reduction. Same question, is the $5k deductible and if so, where do I deduct it (interest, taxes..)??

[observer53]

I would get advice from a trained tax preparer or accountant (or look for the answer to your question on the IRS site) before asking this sort of question on any anonymous forum.

[eventusstultorummagister]

Originally Posted by derek1268

...called me and said that if I didn't come to closing with $9k they were going to come after me for the deficiency balance.

The FDCPA specifically prohibits threats. Threatening to sue if you don't pay is clearly an attempt at intimidation and a gross violation. They cannot say what "might happen" if you don't pay.

YOU can sue THEM now...