Are Trust Deed Foreclosure proceeds taxable?

[Alex Rozin]

Let’s assume you have invested into a Note secured by a 1st trust deed on a property.

The deal goes bad, and you have to foreclose.

Let’s also assume that the foreclosure proceeds are more than the note amount.

Is the difference (foreclose proceeds – note outstanding – expenses) taxable and at what rate?

[Al Wilson]

Depending on the deal terms and state law, you may find that you owe the borrower the amount by which the foreclosure proceeds exceed the note balance.