Are Surplus Funds Considered Taxable Income?
These are smart questions — and ones that many homeowners overlook. This guide answers whether surplus funds are considered taxable income, when they must be reported, and what to discuss with your tax professional.
Are Surplus Funds Considered Taxable Income?
If you recently recovered surplus funds after a foreclosure or tax deed sale in Florida, you may be wondering:
“Do I need to report this on my taxes?”
“Will I owe the IRS anything?”
These are smart questions — and ones that many homeowners overlook. This guide answers whether surplus funds are considered taxable income, when they must be reported, and what to discuss with your tax professional.
What Are Surplus Funds, Again?
Surplus funds are the extra proceeds left over after a foreclosure or tax deed sale, once all debts tied to the property (such as the mortgage, property taxes, and legal costs) are paid off.
For example:
You owed $180,000 on your mortgage
The home sold at auction for $230,000
The $50,000 difference is the surplus, which may be legally claimable by you as the former property owner
So… Are Surplus Funds Taxable?
It depends on your specific situation, but here’s the general breakdown:
✅ Most Surplus Funds Are Not Taxable as Regular Income
Surplus funds are typically considered a return of equity in your property — not earned income. If the property was your primary residence or investment, you are essentially receiving proceeds from the sale of your asset. In this case, the funds are not treated like wages, self-employment income, or business profit.
⚠️ However, You May Still Owe Capital Gains Tax
If you originally bought the property for significantly less than what it sold for at auction, and the surplus represents a gain above your basis, you may owe:
Capital gains tax, depending on how long you owned the property
This is more common in investment properties or flips, not primary residences
⚠️ You May Also Owe Tax on Interest If Applicable
If the court or Clerk includes interest in the disbursement of surplus funds (this is rare), that interest may be taxable and reported separately.
IRS Reporting: Will I Receive a 1099?
In some cases, the Clerk of Court may issue a Form 1099-S or 1099-INT if the surplus funds involve interest or are classified as reportable income under IRS rules.
This depends on:
The amount recovered
The type of property (residential, investment, commercial)
Whether the court or county classifies part of it as income
You may not always receive a 1099, but you're still responsible for reporting taxable income on your own return.
Situations That Could Trigger Tax Liability
You owned the property as a business or LLC
The property was part of a rental portfolio
The sale resulted in a capital gain
You claimed mortgage interest deductions on prior returns
You have past tax debt, which the IRS may offset against your surplus
Talk to a Tax Professional (Seriously)
Tax rules can vary depending on:
How the property was titled
Whether it was your primary residence
Whether you're an heir or the original owner
How long you held the property
A qualified tax preparer or CPA can review your specific case and:
Confirm whether any portion of the funds is taxable
Help you avoid penalties for underreporting
Guide you on how to offset gains with losses (if applicable)
What We Do at Visionary Surplus Recovery
We’re not tax advisors — but we do:
Help you track and document your surplus recovery
Let you know what records to keep for tax season
Work with attorneys to ensure everything is filed legally and transparently
And importantly: we never charge upfront and only get paid when you do.
📞 Questions About Surplus Funds and Your Taxes?
We’ll help you recover what you’re owed and direct you to the right financial experts if needed.
👉 Start Your Free Case Review
📩 Or call us now at (813) 934-4146
Surplus Funds & Taxes: What to Ask Your CPA
Use this checklist to prepare for tax season after receiving surplus funds from a foreclosure or tax deed sale in Florida.
Property Questions:
Was the property my primary residence or a rental/investment?
How long did I own the property before it was sold?
Do I still have records of my original purchase price (cost basis)?
Surplus Funds Questions:
How much surplus did I receive?
Did any of that amount include interest?
Did I receive a 1099 form from the Clerk, court, or attorney?
Legal & Tax Implications:
Could any portion of the funds be classified as capital gains?
Do I have any offsetting losses from other properties or investments?
Am I responsible for reporting surplus income on this year’s return?
Do I have any IRS tax liens or debts that could offset these funds?
Documentation to Bring to Your CPA:
Copy of your surplus funds disbursement letter
Any 1099 forms received
Original closing documents or settlement statement
Any notices or statements from the Clerk of Court
Need Help Locating These Documents?
📞 We’ll assist you. Contact Visionary Surplus Recovery
Disclaimer: This blog post is for informational purposes only and does not constitute tax advice. Please consult a licensed CPA or tax attorney for personalized guidance.
