Question for my fellow realtors, I saw a guy on CNN who said that people who get foreclosed on there home will

Asked by Peter Solomon, Los Alamitos, CA Wed Jul 30, 2008

owe the IRS the difference on the balance and receive a 1099. Now I thought this was true for short sales, but I also thought a law was passed for this year that would forgive people from having this done in a short sale situation. Can someone clear this up for me? I assumed your home is collateral on a loan wether the price had gone up or down? Why would so many people walk away from a property if they were going to get hit with a huge tax bill? Thanks everyone.

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Keith Sorem, Agent, Glendale, CA
Thu Jul 31, 2008
The Act is specific about the type of mortgages covered, time frames of purchase, and qualifications.
Some individuals may be subject to capital gains when they sell their homes via a short sale, they'll need to check with their CPAs.

Many people re-fi'ed and used the cash for other things. Only purchase money loans, or loans to re-model or rehab will qualify. So if an owner bought a bunch of toys, they are going to be exempt from this act.

See link below.
3 votes
., , Los Angeles, CA
Sun Feb 1, 2009
Depending on the seller and definitions for a prohibited transaction. Same in a modification and of course your basis in the property. If your upside down and the seller establishes a price upon trustee sale below your basis - then how?

If the seller (Lender) receives the insured proceeds from the overcollateralization for any short fall NO WAY!
(See CPA) Same with a modifcation - Under section I of the code subject to modifcations the IRS revenue procedure it describes the conditions under which modifications to certain subprime mortgage loans will not cause the Internal Revenue Service (Service) to challenge the tax status of certain securitization vehicles that hold the loans or to assert that those modifications create a liability for tax on a prohibited transaction.

The purpose of the revenue procedure is to provide certainty in the current economic environment with respect to certain potential tax issues that may be implicated by fast track loan modifications, as described below. No inference should be drawn about whether similar consequences would obtain if a transaction falls outside the limited scope of this revenue procedure. Furthermore, there should be no inference that, in the absence of this revenue procedure, transactions within its scope would have impaired the tax status of securitization vehicles or would have created liability for tax on a prohibited transaction.

Rev. Proc. 2007-72, 2007-52 I.R.B. 1257, provided similar guidance regarding fast-track loan modifications that were effected in a manner consistent with certain principles, recommendations, and guidelines (the “Original Framework”), which the American Securitization Forum (“ASF”) released on December 6, 2007. In July 2008, the ASF released an updated Framework, which covers additional fast-track loan modifications.

This revenue procedure amplifies and supersedes Rev. Proc. 2007-72 by extending its provisions to these additional loan modifications.
0 votes
Richard M. J…, , Sherman Oaks, CA
Wed Jan 14, 2009
An accountant should be be able to answer this question. Good luck Peter.
0 votes
Charita King…, , Downey, CA
Wed Jan 14, 2009
Why not? It would be right to issue a 1099 if you taken the equity out. 1099 are also issued to second home and investment properties.

Contact your tax representative to get more information

Charita King
Century 21 My Real Estate Co.
0 votes
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