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!
You need to be a member of Short Sale Superstars to add comments!
**********************************
like buttons
Replies
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!
@Simon Campbell, that only applies to the Principal Residence. This was an investment property. The basic fact is that in this case, tax is payable on the debt forgiven because the IRS treats it as income - subject to any of the many other factors that may or may not reduce or eradicate the tax for this individual.
Bottom line - all short sellers should be advised that there MAY be a tax liability on the write-off, and they should consult a qualified tax adviser
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.
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!
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.
Smitty great advice. NEVER give tax advice or legal advice unless you are qualified to do so.... refer them to a good CPA.
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...
-
1
-
2
of 2 Next