I have a potential client who owns 2 homes. He is renting out home #1 and living in home #2. He wants to short sell home #1. Am I correct in assuming that he will owe taxes from the bank issued 1099-C?
Also, any word on if the Mortgage Relief Act is to be extended?
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Les. In California, he will be 1099'd, so refer him to his CPA (or her?). No extension yet, but would be dumb not to..and who's to say that has anything to do with it, right??? Hoping as I too am in California..
It is possible that he could have losses on the sale of home #1, perhaps even greater then 1099 gain if he never did cash out refi. I have seen some very large tax windfalls resulting from short sales on investment properties, even with the 1099 impact. He should consult with a CPA that is familiar with this issue for guidance so there is no questions as to his exposure.
There was a motion put forth to extend the mortgage releif act, but with election year and the bickering about taxes and such, I would not be surprised if it did not even make it to vote this year.
Les - He may not owe taxes if he is insolvent per IRS. If he is concerned, have him talk to his accountant before going forward. As for Mortgage Relief Act, if it is not extended, the above still could apply.