What are the short sale tax ramifications?

Guest 0.10 Dollars($)

I might be looking at 3 or 4 shortsales, I have gotten myself into big debt trying to avoid it, but there is no other way out, so I am so concerned about ending up oweing so much tax that I can't pay it, then have all those penalties and interest added and end up in an even worse financial situation. Do mortgage companies always 1099? My homes are in california and nevada.
Any suggestions on what to do. I recently moved to nevada, and don't know a really good accountant/tax person. I appreciate your time and imput

livinginnky · Posted: Tue Nov 06, 2007 3:35 pm Post subject:

Yes they usually do. Contact an attorney. I believe that for the rest of this year 2007 you don't have to pay the taxes. Again I am not an attorney so one is definately necessary. But if it is true and you sell this year you won't have to owe. There is nothing to say that it won't continue next year but that has yet to be determined, as far as I know.

jenkin7 · Joined: 04 Jun 2007 Posts: 939 140.77 Dollars($)

Hello Marilyn,

The lender generally gives the 1099-C form to the borrower. He might as well send it to IRS where you have to claim the unpaid balance as income on your part and pay taxes on that. In both cases you are liable to pay tax.

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi Marilyn,

If the lender exempts your debt then he will give you 1099-C form so that you will pay the tax on the exempted amount. I think Eric is right. You should better consult with an attorney on this regard.

Thanks,
Larry

Guest 0.10 Dollars($)

I have 1 home that just went into foreclosure. I have 2 more homes that I don't know what to do...whether to foreclose or short sale. A friend of mine told me that the president passed some law that if you short sale the irs can't go after you with a 1099 for the remainder of the money. I live in AZ and I don't know what the ramifications will be for either the short sale or foreclosure. I have not had a salary in 8 months. I have no money coming in. Please tell me what can happen and is there such a law.

Thank you,
Michele

0.10 Dollars($)

Michele,

You need to contact your lender. It will be up to them. Should they choose to accept a short sale or go to foreclosure. You are correct you may not have to pay the taxes on the difference for the rest of the year. After that we will have to wait and see what are lawmakers decide.

A short sale is typically better than a foreclosure.

blue · Posted: Wed Nov 28, 2007 11:37 pm Post subject:

Hi Michele,

Welcome to Mortgagefit discussion board.

Foreclosure should be your last option to choose. First all talk to your lender and see if he can help you out with some affordable options.

If no options suit you, you can request your lender for short sale or deed in lieu of foreclosure. I will rather suggest you to go for the Short Sale because it has less effects on your credit than foreclosure or deed in lieu of foreclosure.

rick · Posted: Wed Dec 19, 2007 11:13 am Post subject:

Good news was published today that Congress passed the law and the President is expected to sign it that will exempt the homeowner from paying the tax on the amount you might still owe for a short sale. This may not apply to 2nd homes - so I would certainly be getting my financial and legal advice from an "up to speed" real estate attorney and CPA. You can call some Real Estate agents (they are everywhere) and ask for a referral for a good R.E. attorney where you are.

Good luck,
Rick

Samantha · Posted: Thu Dec 20, 2007 4:54 am Post subject: RE: Mortgage Tax Relief

Yes Rick, that is the news and it's something really good for homeowners who are struggling to pay off their debt.

When borrowers default, they are burdened with the thought of paying off the mortgage and then added to it, there was the tax payment. Now, at least the burden will lessen a bit so we can expect borrowers and lenders negotiating with each other to resolve mortgage problems. But Rick, is it that the law is effective for the next 3 years only?

rick · Posted: Thu Dec 20, 2007 10:07 am Post subject:

Yes, that's my understanding - a 3 year window. I think that's good news for all parties concerned - there are lots of investors and courses out there that teach how you can buy homs in "pre-foreclosure," i.e., short sales, for 50 and 60 cents on the dollar. Even if the lender would agree to that, the home owner could have had a big problem with that because they would have been on the hook for a huge tax hit.

With this law, the home owner in trouble is more likely to move forward with a short sale knowing that they don't have to pay the tax. Three years, I think, is ample time to sort this mess out.

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