recovering property via foreclosure

Discussion in 'Tax' started by Reggie, Mar 1, 2013.

  1. Reggie

    Reggie Guest

    Taxpayer sells real estate, and takes back a first mortgage. Buyer then
    defaults,and the taxpayer takes back the real estate via foreclosure.

    What are the tax implications of:

    1. taking back a first mortgage. I believe the sale is complete and stands
    on its own, and the mortgage is treated as a separate transaction.

    2. recovering the property via foreclosure. I believe this is a new
    acquisition, with the basis being the unpaid principal on the mortgage plus
    whatever legal and transactional costs that are incurred to accomplish the
    foreclosure.

    Is this correct? any other thoughts?
     
    Reggie, Mar 1, 2013
    #1
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  2. There is both a mortgage and a note. The mortgage simply secures the
    note and allows the creditor to have the property sold to satisfy the
    note if payments are not made on time. In most places a mortgage
    does not simply allow the creditor to take the house, but the house
    has to be sold to the highest bidder, and the creditor gets paid up
    to the amount owed to him.

    If the creditor makes what is generally called a full credit bid
    (bidding the amount owed at the foreclosure sale) and as a result
    buys the house, when he sells it that is a separate transaction. But
    the foreclosure sale itself is not.
     
    Stuart A. Bronstein, Mar 1, 2013
    #2
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