Property Q&A in 30022>Question Details

lomary2012, Home Seller in 30022

How do I deal with 1099 from banks, totaling over $250,000, on a recent short sale of investment property?

Asked by lomary2012, 30022 Fri Sep 7, 2012

I qualified for hardship on a short sale, on every level you can think of (loss of income, under water, life tragedies, etc.). But I was told only three days before the closing that I would get 1099's for this amount. I'm told that if I can prove insolvency at time of sale then I don't have to pay taxes on the $$ the banks wrote off. But I was also told by a CPA that proving insolvency rarely works with IRS. I did a lot of research about short sales before I agreed to do one, but I never saw mention of these tax issues. How does one who qualifies for a hardship deal with paying taxes on a $250,000 1099 from a bank?

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Answers

5
Short Sale Consequences

A short sale is dependent on a buyer making an offer to purchase. If you do not receive an offer, you will not qualify for a short sale. So even if you meet all the other criteria, it is possible that no one will buy the short sale. It is also dependent on the lender accepting the buyer's offer. If the lender rejects the offer, a short sale will not take place.
â– Tax Consequences
If the lender agrees to the short sale, the lender may possess the right to issue you a 1099 for the shorted difference, due to a provision in the IRS code about debt forgiveness. Many situations are exempt from debt forgiveness, according to the Mortgage Forgiveness Debt Relief Act of 2007.

You should speak to a real estate lawyer and a tax accountant to determine the amount of short sale tax consequences, and whether you can afford to pay those taxes, if any.

â– Blemished Credit Report
While a short sale will not show up on your credit report, the loan status will. For those in default, it's a pre-foreclosure that has been redeemed, which is often reported as Paid in Full for Less Than Agreed. Short sales affect credit ratings. While the damage to your credit report may not seem as significantly bad as a foreclosure to you, creditors may not make the distinction.


Always seek legal counsel before attempting to pursue a short sale. A real estate agent cannot give you legal advice.

Fred Yancy, Broker
Crye-Leike Realtors
(678) 799-4663
2 votes Thank Flag Link Sat Sep 8, 2012
Mortgage Forgiveness Debt Relief Act Expires Dec 31 2012!

If you've been thinking about doing a short sale on your North Georgia home, you might want to hurry. The Mortgage Forgiveness Debt Relief Act is set to expire on December 31, 2012


If you've been thinking about doing a short sale on your North Georgia home, you might want to hurry up. The time is limited for homeowners who want to ensure they aren't hit with a big tax bill because they had to walk away from a mortgage obligation. The Mortgage Forgiveness Debt Relief Act is set to expire on December 31, 2012.

At the height of the housing crisis, Congress passed the Mortgage Forgiveness Debt Relief Act of 2007, designed to provide some consolation to folks who had lost their homes.

In summary, the Mortgage Forgiveness Debt Relief Act states that if you borrow money (up to $2 million dollars) from a bank or a commercial lender and the lender cancels or forgives the debt (a.k.a. Short Sale) then you are not responsible for paying taxes on the forgiven amount. This applies only to primary residences, NOT investment properties.

The Mortgage Forgiveness and Debt Relief Act applies to debt forgiven in calendar years 2007 through 2012. It has not yet been determined if the Mortgage Forgiveness Act will be extended past 2012.

Upon the completion of a successful short sale transaction, your bank is required by law to provide the IRS with a Form 1099-C. The 1099-C will show the IRS the amount of debt which was cancelled or forgiven. Before December 20, 2007, (this is the date which the Mortgage Forgiveness Debt Relief was enacted) the amount of forgiven debt was considered to be taxable income. This is no longer the case for primary residences; however, all this could change if the Mortgage Forgiveness Act is not extended.

One of the most frequent questions we are asked regarding short sale transactions involves the tax consequences of these situations. There is a tremendous amount of mis-leading and 'completely false' information floating around on the internet. Of course as a Realtor, we are not licensed to give tax advice, and thus will strongly suggest that you always consult with a licensed CPA or attorney when dealing with these matters; however, please click the attached link to view the Mortgage Forgiveness Debt Relief Act as it appears on the IRS web site (click link) http://www.irs.gov/individuals/article/0,,id=179414,00.html


We have helped hundreds of Georgia families avoid foreclosure. Sellers facing foreclosure must remember that banks are not looking out for you or your family. When you work with me and my team, our job is to get between you and the bank. We represent our clients, NOT the banks. It is our job to negotiate the best possible outcome. Ultimately, our job is to take away the stress, protect our clients assets, and make the transaction as smooth and stress-free as possible.

Fred Yancy, Broker
Crye-Leike Realtors
(678) 799-4663
1 vote Thank Flag Link Sat Sep 8, 2012
Thank you for putting more content than your contact information took up. :)
Flag Tue Sep 11, 2012
For any tax advice, you would have to consult with a CPA or tax attorney. Only a tax professional is qualified in this area.

Regards,
Rodney Mason, NMLS #151088
Sr Loan Officer
Prospect Mortgage
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
rodney.mason@prospectmtg.com
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia

Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePath® | HomePath® Renovation | HomeStyle® Renovation | VA | USDA | GA Dream | Jumbo Financing
0 votes Thank Flag Link Mon Sep 10, 2012
For any tax advice, you would have to consult with a CPA. Only a tax professional is qualified in this area.

Regards,
Rodney Mason, NMLS #151088
Sr Loan Officer
Prospect Mortgage
825 Juniper St NE, Atlanta, GA 30308
Office: (404) 591-2453
rodney.mason@prospectmtg.com
Apply Online at http://www.rodneymason.com
Licensed in Alabama & Georgia

Prospect Mortgage offers a full selection of mortgage programs including:
Conventional | FHA | FHA 580-639 FICO | FHA 203K Renovation (Streamline & Consultant) | HomePath® | HomePath® Renovation | HomeStyle® Renovation | VA | USDA | GA Dream | Jumbo Financing
0 votes Thank Flag Link Mon Sep 10, 2012
A short sale, by definition, is a foregiveness of a debt, so there's always going to be a taxable gain. However, the banks have not been consistent about sending out 1099's on short sales. I would recommend you talking to another CPA and also an attorney who specializes in tax matters and dealing with the IRS. Finally, have you received the 1099? Depending on who told you that one would be coming, it may not actually happen.

Good luck!
0 votes Thank Flag Link Sat Sep 8, 2012
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