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Liabilities - Form 982

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    Liabilities - Form 982

    Am wondering about liabilities and also the exemption for mortgage on a personal residence. Any relevant comments appreciated on either of the following:

    1. TTB explains that the exemption must center around an "acquisition" mortgage. Does this mean that 2nd mortgages are absolutely not exempt, or does it mean that any mortgages are allowed but only to the extent that their principle does not exceed the acquisition price of the home?

    2. Taxpayer during her marriage to an ex-husband signed numerous ill-advised joint loans with various lenders. This included everything from banks to unethical street corner finance companies. At the critical date of the 982 there was one loan for $100,000 jointly owed with her ex-husband. Her ex-husband was incarcerated as of this critical date. For purposes of the 982, should she list the liability as 100%, 50% or 0%.

    The large loan referenced above was eventually relieved from the taxpayer by legal negotiation, but this was after the critical date. The finance company did not send her a 1099-A or 1099-C but decided to pursue ex-husband for collection. Does this mean she has to claim this forgiveness as income?

    On 08/15/15 I am editing the original post to add a comment - I haven't been able to find anything in the IRS pubs that addresses the listing of a joint liability with a different party, or speaks to the situation if the parties are jointly and severally liable. If anyone has a link to some authoritative source that addresses this, please send it to me. Don't send a link to the IRS pubs -- already been there.
    Last edited by Snaggletooth; 08-15-2015, 06:50 PM.

    #2
    I will offer a reply to your first Q.

    The exemption doesn't depend of whether a mortgage is a 1st, 2nd, or even a 3rd. It depends on whether it's a "purchase money" loan ... i.e. a loan for which the proceeds were used to purchase the real estate secured by that loan. It's not unusual for borrowers to take out two loans when buying property ... a 1st and a 2nd ... and both loans are used to pay for the property. A "hard money" loan, such as a HEL, is just the opposite, where the proceeds are not used to buy the property.
    Roland Slugg
    "I do what I can."

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      #3
      Thanks to Roland; Acquisition Mortgage

      Appreciate very much the reply, but can the inclusion of multiple mortgages be expanded to include mortgages which were not used to purchase? Maybe an example.

      Home was purchased in 1995 for $150,000, and there have been no improvements. Today, the home is worth $225,000. Taxpayer borrowed $140,000 on a single mortgage when the home was bought. Balance today on this mortgage is $80,000.

      Today, taxpayer borrowed against the house to the tune of $75,000 without much trouble because of the current value of the home. Total of all principal balances today is $155,000. What is the "acquisition mortgage" today?

      Possibilities:
      a) Only $80,000 because this was the mortgage used to originally buy the home.
      b) Only $150,000 because mortgages are allowed to accumulate to the original basis of the home. $5000 excess not allowed.

      And if understand your response Roland, if this second mortgage is a HELOC, it is not allowed at all?

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