A prior client that did a short sale on his investment property received a 1099-C from the bank and his accountant says he owes $27,000 in taxes?  How is this possible when they earned $40,000 last year, even with form 982?  Can anyone recommend a good accountant in FL that understands how work with 1099-C's from Short Sales and can help them? Thanks much!

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Almost any CPA should be able to do the 982 calculations, I would think.  As to "How is this possible when they earned $40,000 last year, even with form 982?", the Form 982 doesn't calculate/affect income.  It determines net worth, which can affect how much of the forgiven debt is added to other ordinary income, and get taxed..  How much was the forgiven debt? 

Thanks Wayne.  Forgiven debt was $123,000. 

I am not a cpa or advisor..but if I remember the rules for investments are different, especially if in an entity such as an llc.

I could be way off, but losses on the investment should be deductible....unlike in a homestead.  This means that the person may be able to write off the loss against the income as well.  Purchased for 200, shows income and depreciation...then sells for 120, short sale gives a 1099c and has a gain of 80K...but a write off of around 80...there will be some other gains due to depreciation prossibly.  Talk to a good acct. Make sure it is one that has no audits annually. There are fewer of them but they are a better bet.

I think the MDFA only applies to primary residence loans, not investment properties.  It's not your job to give tax advice. That's why he has an accountant. 

Thanks Smitty.  I am aware that I cannot give tax advice, but I'm trying to help by steering him in the right direction and educating myself.  There are some other exceptions when cancellation of debt income is not taxable such as BK and insolvency. In the link below is additional information.

http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief...

Smitty great advice. NEVER give tax advice or legal advice unless you are qualified to do so.... refer them to a good CPA.

Send the seller to this link and then just let them discuss it with their tax professional.

Will You Owe Taxes?

Thanks so much for the useful information Bryant!  Appreciate it!

This lender has not stayed up on current governmental policies. A 1099-C is a Cancellation of Debt form that was filled out because of the short sale difference between the sales price and the amount owed.

On January 1st, Congress signed the H.R. 8, the American Taxpayer Relief Act of 2012. The mortgage cancellation relief for home owners or sellers who have a portion of their mortgage debt forgiven by their lender, typically in a short sale, foreclosure sale or loan modification is extended through 2013.

Based on the extension of the mortgage forgiveness act, the taxpayer is not liable to pay taxes on forgiven debt.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

Bibi - Tell them to get a second opinion from another CPA or a Tax Attorney.Most people that do short sales are insolvent - have them bring this to their accountant, who should know anyway,to discuss, from the IRS:. Mortgage Forgiveness Act and Debt Cancellation and 10 Facts for Mortgage Debt Cancellation.

Thanks Wendy - will do!

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