Tax Problems On Short Sale
Have not had a problem yet but thought I would ask anyway. Besides the negative credit stigma that a Short Sale poses to a seller regarding a deficiency balance,
(the difference between the ss price and
the outstanding balance) How often do lenders try and pull the tax liabilty card by reporting the deficiency as 1099 earned income? As most of my leads are generated via BK attornies and have already filed for Chapter 7/13 before ss.
dl will
"Short Sale Master"
Well, Master... better get a handle on the terminology.
You are speaking specifically to forgiven debt. If a mortgagee forgives (takes a loss) on a portion of meoney it is owed... it offsets that loss by reporting the loss via a 1099 to the Seller and Beneficiary o the forgven debt... and the IRS.
Don't confuse the pursuit of a deficiency with the act of debt forgiveness.
Hmm this got me thinking as I am working on foreclosures in MA.
I am far from being a master but am learning a lot.
Am I correct that as long as you make it a condition of the short sale that the bank will not pursue a deficiency judgment...they won't?????
I thought the 1099 was not generated very often as there is no real incentive to the bank? How often do they issue a 1099 if a deficiency judgment waiver has been granted?
I was thwarted (drat and double drat) in a SS recently as the gent had gone through a Chap 7 and in his discharge letter the bank somewhat amazingly agreed to waive a deficiency judgement!!!! That tipped them away from a SS.
"I thought the 1099 was not generated very often as there is no real incentive to the bank?"
Simply stating that a condition of short sale is that the lender agree NOT to pursue a deficiency won't influence the lender one way or another. They'll issue the terms of their short sale approval... if the Seller agrees, fine. If the Seller doesn't agree to the terms...the Seller
can appeal or simply choose not to participate in a short sale.
From an accounting point of view, I'd say that the bank is very motivated to generate an offsetting 1099. I think that less often do they pursue a deficiency, and more often agree to debt forgiveness.
[addsig]
ShSaPro,
When I say Master what I mean is that I have Mastered the art of locating, negociating, and funding potential ss.
My track record speaks for itself.
Anyway, back to my original post. What I was trying to ask was, how often do lenders issue 1099 tax statements for the deficiency balance that they have obviously forgiven? And also can the client dispute this "income" with the IRS to have it forgiven with them as well?
dl will
" Short Sale Master "
:-D
"how often do lenders issue 1099 tax statements for the deficiency balance that they have obviously forgiven? And also can the client dispute this "income" with the IRS to have it forgiven with them as well?"
1. I'd say that the larger and more sophisticated the mortgagee's servicing operations, the more likely a 1099 will be issued. If I had to estimate an industry average, I'd say in 75% of the cases, a 1099 will be issued... if not sooner, then later.
2. In the majority of SS scenarios the Seller can demonstrate that the income should be exempt from tax. It is the Seller's responsibility to make the case.
ShSaPro,
I have seen situations after purchasing REO property where the bank will send 1099 statements to the address for previous owner. I would like to know the exact procedure for disputing the 1099 tax amount.
dl will
[addsig]
"I would like to know the exact procedure for disputing the 1099 tax amount"
Well, that depends upon circumstances..
Why don't you take a CPA out to lunch...