Legal Question in Real Estate Law in California

Question, I filed for Bankcruptcy in 2009 and included my home (both 1st & 2nd mortgage totaling $495,990+$120,000) in the BK chap 7. I was unable to make the payments in 2010, same year BK was discharged, and the property was foreclosed on in Feb 2011.

Purchase price for owner occupied in 2000, was $400,000. REO foreclosure final sales price sold May of 2011 was $461,040. Difference of $54,950. Cost base per depreciation $405,904, less depreciation $48,916=adjusted basis $356,988, hence estimated gain of $104,052 per my tax CPA.

Why are we being required to submit a real estate gain/income on property that has been part of a BK & has been foreclosed on? It this correct? I don't believe we should have to claim this as income/gain on 2012 taxes...

Please explain foreclosure and BK and whether or not we are exempt from this...??

http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief-Act-and-Debt-Cancellation-

Here's what I refer to (Mortgage Debt Relief Act 2007, enforced from 2007-2012)

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.

Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.

Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.

Thanks,

Mike


Asked on 10/13/12, 2:38 pm

1 Answer from Attorneys
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

It looks as though you have concatenated your question with an answer you've already received. In any case, I don't understand the question; it looks like you already have an answer. If the material following "http://" in your question is not a sufficient answer, I'd suggest you have another conference with the accountant, and if that doesn't help, contact an attorney or the IRS directly.

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Answered on 10/13/12, 5:10 pm


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