Taxes on Foreclosure

[WageEarner]

Hello!

My Chapter 7 Bankruptcy has been discharged (old law). No reaffirmation of Mortgage (there is a 1st & 2nd). Lis Pendens has been filed and court proceedings moving forward. Sheriff's sale will be early 2007. Sheriff's sale will bring in enough monies to pay the 1st Mortgage holder, plus all the late fees, interest incurred, and advances that are being made from the escrow account (which is negative) to pay the property taxes. 1st Mortgage holder will not be paying anything on the 2nd Mortgage. I made two payments on the first mortgage, and 3 on the 2nd in the year of 2006 and the homeowners insurance premium for the year was made from my escrow account while there was still money in it.

My tax questions are:

1.) Can I write off the interest that was paid on the actual payments that I made on both mortgages before I went into default? Can I write off the first tax payment of the year that was paid out of my escrow before it was negative?

2.) Since the 1st Mortgage holder is advancing the property tax and paying on my behalf and they will recover these amounts at the sheriff's sale by selling my property - does that mean in essence that the tax advance payments were paid back to the 1st Mortgage holder? Do I get to write off the taxes paid since they were paid back to the 1st Mortgage holder from the proceeds of my property?

3.) What about interest that was acruing during the default, since it would be paid by the sale of the house, do I get to write that off too? I guess this would be the same scenario as above. I didn't pay it, but the sale of my house did. (of course I'm only referring to the 1st mortgage interest)

4.) If the answer to 2 & 3 are yes, do I write them off in the years the taxes and interest were incurred, or in the year the property was sold.

is this just wishful thinking?

Any tax accountants out there?

[HHM]

This level of detail on taxes is a bit beyond the scope of this forum...so I don't know how much of a response you will get...you should probably consult with a CPA, but here is my take.

1. Yes, any property tax that was paid with "your" money, you can deduct.

2. Probably not...because of the foreclosure...the bank is just recouping their loss, you are not paying the property tax.

3. Again, probably not...see answer to 2. (you are not paying the interest).

I think this is wishful thinking, plus, more than likely, you will get a statement from the bank (I forget the IRS form number) informing you what property tax was paid on your behalf and what interest you actually paid.

However, I am not an expert...so you may want to informally ask a CPA.

[WageEarner]

Thanks HHM! I actually did forget that I would get a 1098 from the Mortgage.

I guess I'll just claim whatever is on that form!

I appreciate you taking the time to answer. I figured it was wishful thinking! LOL

[SinkingFast]

As to the tax issues,........... I would recommend seeing a Tax Attny over a CPA myself.

CPA's tend to be fine for straightforward tax issues. But when your case ventures off onto less trodden paths, CPA's tend to get a bit over their heads. That's where a tax attny would be much more beneficial. They know both finance and the law, beyond basic tax law that is.