Excess monies from foreclosure sale

Forum|Forum|3 years ago
February 20, 2023
2 replies
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I am doing my 83 year old mother in laws taxes. She recently had a home foreclosed on her in Wilmington, NC. there was excess funds of $116k which we are now using to take care of her since she is in assisted living. she received a 1099-misc from the county for the excess funds causing her to have a tax debt of $26k for the federal and $6k for state. I know that you can have a tax exemption on selling a house up to $250k but this was not a tradidtional sale and the way that the monies were reported are not the same. is there anything we can do to lower the tax bill. i know we can do a payment plan and if we have to we will. but i am also wondering that is we do have this huge bill can she apply for forgiveness. i used to work in the field and know all about it so i do not need help preparing forms and all. the money is in my husbands seperate account that is used specifically for her needs and living costs at the facility.

JamesG1

Level 15

Even a foreclosure may qualify for a sale of your main home. Your mother may qualify for the first $250,000 in gain on the sale of the main home being tax-free.

IRS Publication 4681 page 4 states:

Recourse debt

If you owned property that was subject to a recourse debt in excess of the fair market value (FMV) of the property, the lender's foreclosure or repossession of the property is treated as a sale or disposition of the property by you and may result in your realization of gain or loss.

That income is free and clear as long as:

You owned the home
It was your main home for two years or more within the five years leading up to the sale
You waited at least two years between selling your primary home and excluding your first $250,000 or $500,000 from taxes. In other words, you may buy and sell as many primary homes as you'd like, but you'll only get this tax benefit every two years.

In TurboTax Premier or above, follow these directions.

Down the left side of the screen, click Federal.
Down the left side of the screen, click Wages & Income.
Scroll down to Less Common Income, click Show more.
Click Start to the right of Sale of home (gain or loss).
Follow the directions.

See also this TurboTax Help.

@poisonlady7563

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poisonlady7563Author

Level 2

the issue is that we had to move her out in september of 2018 after hurricane florence and the fact that she was attacked in the home by a family members boyfriend so she is about 2 months short of the 5 years (by the time we did a residency change). she is now in assisted living.

ShirlynW

Level 8

The information provided by @DianaeW777 and @JamesD1 is extremely helpful.

Yes. The attack would count. In Pub. 523, the section, “Other Facts and Circumstances” it states:

Even if your situation does not match any of the standard requirements described above, you still may qualify for an exception. You may qualify if you can demonstrate the primary reason for sale, based on facts and circumstances, is work related, health related, or unforeseeable.

Important factors are:

• The situation causing the sale arose during the time you owned and used your property as your residence.

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poisonlady7563Author

Level 2

what about the money being reported on a 1099misc from the county and not on a 1099s.

i have worked in tax resolution and know a bit about getting documents and i do have a whole file showing that this was excess money from sale of home. it is just when i put it in turbotax it is showing that we owe $26k becaise of the 1099misc

MarilynG

Level 15

Go through the Home Sale section first to see if you qualify for a Partial or Full Exclusion on the home sale proceeds. Type 'home sale' in the Search area, then click on 'Jump to Home Sale'. If TurboTax asks why you moved, choose 'Health' as the reason (this is for a partial exclusion). If you qualify for the Full Exclusion, you won't even be asked.

If TT says you qualify for a Full Exclusion, make an adjusting entry in the 1099-Misc section with notation 'home sale exclusion' to offset the 1099-Misc income.

If TT says you qualify for a Partial Exclusion, enter that amount as an adjusting entry in the 1099-Misc section.

Save the documentation that proves the 1099-Misc income was for home sale proceeds.

Here's more info on the Home Sale Exclusion.

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