Home Selling in 92116>Question Details

Hwhiteside, Home Seller in San Diego, CA

In the event of a successful short sale, are we going to be taxed in CA for the difference between the loan

Asked by Hwhiteside, San Diego, CA Tue Jan 6, 2009

and the sale?

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8
Kimberly:

The "Mortgage Forgiveness Debt Relief Act" was signed December 2007. I am under the impression that signing Legislation into law through a Bill (signed by, as of today still President Bush ) with preclude the IRS from taxing individuals on debt forgiven by a Lender. I am not an attorney but I believe that Lenders might be issuing the 1099 in order to prove and deduct these losses from their Federal Tax Returns. In any event, Mr. or Mrs.Hwhiteside, check with the IRS or a Real Estate Attorney to be completely sure that you will not be taxed.
0 votes Thank Flag Link Mon Jan 19, 2009
Dear HWhiteside,
I understand that although this December 2008 (not 2007? right?) legislation passed, I believe that many lenders are still issuing 1099's for what is consider phantom income. That is the difference you describe is called. I had this conversation with a bank vice president a week ago and they are not issuing them in every case, but in many. I find it to be hugely inconsistent. So your question should be directed to your lender or your lender's asset manager for what they plan to do in your particular case. Then your second question is to a tax professional (someone who you use) about what they plan to do with a 1099 for phantom income if it's in fact issued to you. With all due respect to Katrina, this is not something that will be on the HUD-1 or disclosed by the agent. to the seller because they won't know the plans of the lending institution for a 1099. This is a decision by the lender taking the short sale.

So your question says "are we going to be taxed" and I am responding as if your question said "will we have to pay tax" because I think that's what you're asking. Please call me if you need additional help.

-Kimberly
0 votes Thank Flag Link Mon Jan 19, 2009
As of December 20, 2007 President Bush signed legislation into law a Bill that would ease the burden of homeowners who have had debt forgiven on a mortgage due to foreclosure, deed in lieu of foreclosure or short sales. The name of this bill is "Mortgage Forgiveness Debt Relief Act of 2007".This bill was a necessity since thousands of people were and are losing their homes and it would be sinful to tack to their problems the extra burden of being taxed by the IRS on the forgiven debt. This information was provided by the Associated Press, Dow Jones International and Realtor Magazine on line at that time. My suggestion is to call the IRS or a Real Estate Attorney. Hopefully, the signature of President Bush on the bill might mean something, though lately I am worried that all the administration orders to help foreclosures, bankruptcies, etc. are only suggestions that many lenders do not follow. Good luck.
0 votes Thank Flag Link Sat Jan 10, 2009
Home seller...Not buyer, my mistake. In that case please consult your tax attorney for the very best answer.

Katrina Hamilton
Direct: 858-405-4407
Web Reference: http://www.downtownREOs.com
0 votes Thank Flag Link Tue Jan 6, 2009
It really depends on the property and the lender. In a short sale proceeding the lender and listing agent are to disclose any liens/taxes that will be due at close of escrow. In CA, your estimated property tax will be 1.25% of your purchase price. Hope the information is helpful.

Sincerely,
Katrina Hamilton
Direct: 858-405-4407
Web Reference: http://www.downtownREOs.com
0 votes Thank Flag Link Tue Jan 6, 2009
Hwhiteside,
The IRS considers debt relief a taxable event, however, if you are insolvent or filing bankruptcy, you should not have to pay any tax. Save any forms you fill out , such as a financial statement, to show your status (for insolvency) at the time of the sale since your staqtus at the time of sale is the time to use for this. It is not based on when you may receive the tax bill. You can go to the http://www.irs.gov site to look up the insolvency definition.
0 votes Thank Flag Link Tue Jan 6, 2009
If it is your principle residence then NO.
0 votes Thank Flag Link Tue Jan 6, 2009
Difficult to say ask the lender what their intent is.
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Tue Jan 6, 2009
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