So I was reading the short sale approval for a BOA Co-Op short sale (the program where BOA gives you a pre-approved price of the property and the home owner up to $30,000 to move out) and found something that caught my eye:
The amount of the deficiency will be reported to the Internal Revenue Service (IRS) on the appropriate 1099 Form or Forms. We suggest that you contact the IRS or your tax preparer to determine if you have any tax liability. Bank of America will report the debt to the credit reporting agencies as a short sale. To learn more about the potential impact of a short sale on your credit, visit www.ftc.gov/bcp/edu/pubs/consumer/credit/cre24.shtm.
Does this mean that both the deficiency and home owner's incentive are going to be reported to the IRS as taxable income?
Thanks in advance!
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The short answer is yes. That said, BofA only sent 1/3 of my short sales 1099s for 2011.
You bring up the point that the bank doesn't have to issue the 1099 now. It could be in 3 yrs or whenever. The downside to the bank of issuing the 1099 is that it officially logs that as a loss - until then, they can pretend that it is an asset. This puts the seller in an awkward position of not knowing when it will show up.
Joseph, all short sales with deficiency waivers are supposed to be reported to the IRS as taxable income. Whether or not it's actually taxable is the bigger question ... right now, for most short sales on primary residences, there are no tax consequences. It's my understanding that it's still the obligation of the homeowner to report that debt forgiveness.
Here's the details:
http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-Debt-Relief...
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Agree. Whether or not the bank reports this year or next or the one after - you have to report to the IRS when filing taxes. But I'm not a CPA or tax attorney and either one should definitely be consulted :)
BofA can't just hand someone $30K and not report it to the IRS ! The tax issue is for the seller / borrower to discuss with their tax advisor.
The Seller should file their taxes with the assumption that it will be filed. Then regardless of when or whether or not BofA files, the seller is already covered. Otherwise the Seller would have to go back and restate their taxes.
I'm not a tax adviser .. but this is what I believe is true.
Great question Joseph :)
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