I am really confused on short selling our rental home. The home is worth 188,000 according to appraisal done last week. I have a short sale agent involved and think I was mislead. When short sale company was talking to me about short selling , they mentioned the mortgage forgiveness act . I found out from my accountant that it applies only to your primary home, which we have and live in. The rental home has been rented for 4 years now when we bought our other home. we owe about 242,000 on it and the homes in neighbor hood will never bring this amount. Unfortunately it is one of the largest homes n the neighborhood . The home next door is same size , but with a finished basement and foreclose at 160-170 3 years ago. it is on market at 225,000 now. My short sale company said that Capital one will release me of the difference if short sale, but I assume I will get a 1099 and I cannot use the mortgage forgiveness act to release me from this. My accountant stated this : We are behind on payments on home 5 onths , because we could not find a renter and home needs some repairs also;
The depreciation recapture is 21,820.00
If the forgiveness of debt is 50k, then your total income from the short sale is 71,820.00. This will put you in a 28% tax bracket (assuming your other income is similar to 2012), the taxes will be $20,109.60 (71,820 x ..28). I can get you an additional deduction that will offset the tax liability for $7,038.36.
So basically it seems I am screwed and have to pay 7,000 in taxes if short sale:
My question is: Any way getting around this ? not paying taxes ..
Any way to negotiate that I do not get a 1099 ?
I think short sale company really miss lead me, but now too late ? I just do not want to pay the 7,000
Thanks
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Kevin, your property went to foreclosure auction yesterday. Did you know the whole time the auction date was set for 10-01? I don't know the redemption laws/possibilities in your state. If you want to pursue the short sale, you'll need to speak to an attorney. If the lender does not pursue you for the deficiency, you will get a 1099 just like the short sale.
I never knew anything, I hate to get a 1099 and pay taxes on it.. I was told lender bought the house back
I e mailed my short sale company the other day, actually Friday and today I get this ? with out no warning ? So now what happens ? what do I do now ?
We regret to inform you that your lender declined to postpone the foreclosure sale for your property located at xxxxxxxxx, GA. Despite our untiring efforts to get the foreclosure delayed to continue work on your short sale Ocwen refused to amend their decision to pursue their right to foreclose. As a result, the foreclosure sale was completed on 10-01-2013 and sold to the lender. At this time we will discontinue processing your short sale and close the file.
Your tax person seems to have covered all the bases and like others have said, you will have the interest deduction and the loss to reduce your tax situation as well.
That said, I've sold more than 30 "2nd homes" as short sales in the CA Desert and have not heard of anyone having a tax issue.
Best of luck !
is it commom to be able to get this insolvency with from irs982..thanks..very little info out there..most realtors do not have knowledge of this..thanks
I suggest reading IRS Publication 4681. There are several methods to reduce/eliminate the credit cancellation tax consequence. While I am not a tax accountant I believe if you read this and discuss it with your accountant you will find tax reduction help.
I'm not a CPA or a tax professional, but aren't a couple of things missing from the tax guy's formula? 1. When you payoff a loan even if its short the total mortgage, the mortgage company takes out the interest first when applying the payment. This should show up on a 1099 to you as a deduction from your taxes. 2. You have a loss on the sale of this investment property. It doesn't appear that this loss was figured into the formula. Again, I'm not a tax professional and I could be wrong, but it seems that these things should also be figured into the formula.
how can I claim insolvent then.. basically if it was my primary resident , I could be released from taxes, but since a rental I cannot
You can look at the work sheets at IRS.GOV, but your accountant is the one to talk to. Sorry if your short sale people misled you, some people, in every industry, look out for themselves more so than their clients.