Home Buying in Jacksonville>Question Details

Holly Campbe…, Real Estate Pro in FLEMING ISLAND, FL

Insolvency on a short sale?

Asked by Holly Campbell, FLEMING ISLAND, FL Mon Dec 24, 2012

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HI Holly, the debt relief act has not been extended yet we are so hopeful, however the insolvency issue belongs to your tax profession as it is an IRS rule. The debt relief act was only for primary residence and did not include investment property. So when our investors would short sale their homes, they received their 1099 like everyone else does. The people who short sold their home and received their 1099 did not owe taxes on this. Investors technically were supposed to owed taxes on this 1099, however we have had many CPA's be able to get this tax requirement waived to do being able to prove their client was financially insolvent at the time of the short sale and still was after. Leave the tax questions for your CPA- but get a good one. :)
In doing a sort sale, even the possibility of owing taxes on the 1099 is far greater than owing the full balance. when a property is foreclosed on the bank has the right to come after the previous owner for the full deficiency, but at this point it will become a judgement and they could be able to garnish wages.
0 votes Thank Flag Link Sun Dec 30, 2012
Hi, Holly,
Each short sale is a unique situation . I recommed teaming up with an experienced Realtor, tax accountant, attorney and the lender(s) involved, to help you determine your best plan.
Get free valuable information and see all listings at http://www.BUY-SELL-RENT-FLORIDA.com
0 votes Thank Flag Link Tue Dec 25, 2012
Three things:
The DEFICIT on the Loan,
The Income Tax on the Paper gain,
The Property Taxes in arrears.

Florida, being a RECOURSE State; the Lender may be able to come after you, for years to come: You'd have to research Florida law to see what the statute of limitation is on this.

According to the Debt Relief Act of 2009; you would not owe Federal Income Tax: This would depend if this expires next week, and is not renewed. More research needed.

If you haven't been paying your Mortgage; then you probably haven't been paying your Property Taxes either; and that is not transferred to to next owner, (Bank) .

IDEA!!! Can you do a Deed-in-Lieu and consumate it next week? More research!

Good luck and may God bless
0 votes Thank Flag Link Mon Dec 24, 2012
Well this appears to be question, but not sure which direction you are going. Basically, claiming insolvency after a short sale, to avoid taxes, occurrs when your debt is greater than the total of your assets. IRS Form 982 provides the worksheet for claiming this relief.

However, since congress has not yet acted on extending the Mortgage Debt Relief Act if your SS has not closed by 12/31/12, you may be out of luck. Let's wait and see.

I hope this is the information you are seeking.
0 votes Thank Flag Link Mon Dec 24, 2012
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