Now you can search the MLS just like I do! Sign up today and start receiving Foreclosure and Shortsale information the moment it comes on the market. This search will give you the heads up when a new property has come onto the market, you can even receive daily morning reports if you want them.
Set Up your Listingbook Account here: Get My Listingbook Account Now!
Saturday, October 10, 2009
Short Sale 1099 Made Simple to Understand
Many sellers are under a great deal of misinformation about the applicability of the issuance of IRS 1099 forms as they relate to short sales.
When a bank forgives debt in reality the benefit the taxpayer receives is the same as receiving income. Banks that accept short sales and forgive all or part of the debt are obligated, as a matter of law, to issue a 1099 to the taxpayer. In many instances banks are so overwhelmed they simply have been derelict in issuing 1099’s to their sellers. Although many IRS regulations can be confusing it is easy as 1, 2, 3 to understand as they relate to short sales.
1. Principal Residences. The Mortgage Forgiveness Debt Relief and Debt Cancellation Act is in effect until December 31, 2012. Under this law, sellers of a primary residence are forgiven up to Two (2) million of debt, if married and one (1) million if single or married filing separately. Do not confuse this with the capital gain exclusion of $500,000.00 and $250,000.00 respectively. Put another way, if an individual sells his primary residence there basically will be no tax consequence for a short sale.
2. Rental Properties. If the property is a rental property or has been rented in the past and appeared on previous tax returns then the transaction may be treated as a business loss. In this instance, the income received (debt relief) will be washed away by the business loss (sale of the property) on a dollar for dollar basis. In short, for income producing properties, provided the property is sold at a loss, typically there will be no tax consequence for a short sale.
3. Solely Second Homes, Vacant Lots or Speculative Buying. In these instances you may get spanked by the IRS. If you never rented out your property, find a way to do so. Without treating the property like a business a taxpayer cannot claim the corresponding business loss. If a lot or a condo was purchased for purposes of flipping and was never rented you will feel the pain of a 1099. Provided money was lost on the investment capital losses may be carried forward to offset some of the gain, however, these losses are deemed capital losses as opposed to ordinary business losses. As a result, the 1099 will only be marginalized slightly by the capital loss.
In summary, principal residences are virtually immune from 1099’s. As to all other properties it is time to find a creative CPA that will classify and treat this property as a business and just not a bad investment. This was a general discussion of the impact of 1099’s on short sales. Be sure to seek qualified advise as it may relate to your specific facts and circumstances.
Courtesy of Ronald S. Webster,
Attorney at Law
Offices of Ronald S. Webster,
985 North Collier Blvd,
Marco Island,
FL 34145
When a bank forgives debt in reality the benefit the taxpayer receives is the same as receiving income. Banks that accept short sales and forgive all or part of the debt are obligated, as a matter of law, to issue a 1099 to the taxpayer. In many instances banks are so overwhelmed they simply have been derelict in issuing 1099’s to their sellers. Although many IRS regulations can be confusing it is easy as 1, 2, 3 to understand as they relate to short sales.
1. Principal Residences. The Mortgage Forgiveness Debt Relief and Debt Cancellation Act is in effect until December 31, 2012. Under this law, sellers of a primary residence are forgiven up to Two (2) million of debt, if married and one (1) million if single or married filing separately. Do not confuse this with the capital gain exclusion of $500,000.00 and $250,000.00 respectively. Put another way, if an individual sells his primary residence there basically will be no tax consequence for a short sale.
2. Rental Properties. If the property is a rental property or has been rented in the past and appeared on previous tax returns then the transaction may be treated as a business loss. In this instance, the income received (debt relief) will be washed away by the business loss (sale of the property) on a dollar for dollar basis. In short, for income producing properties, provided the property is sold at a loss, typically there will be no tax consequence for a short sale.
3. Solely Second Homes, Vacant Lots or Speculative Buying. In these instances you may get spanked by the IRS. If you never rented out your property, find a way to do so. Without treating the property like a business a taxpayer cannot claim the corresponding business loss. If a lot or a condo was purchased for purposes of flipping and was never rented you will feel the pain of a 1099. Provided money was lost on the investment capital losses may be carried forward to offset some of the gain, however, these losses are deemed capital losses as opposed to ordinary business losses. As a result, the 1099 will only be marginalized slightly by the capital loss.
In summary, principal residences are virtually immune from 1099’s. As to all other properties it is time to find a creative CPA that will classify and treat this property as a business and just not a bad investment. This was a general discussion of the impact of 1099’s on short sales. Be sure to seek qualified advise as it may relate to your specific facts and circumstances.
Courtesy of Ronald S. Webster,
Attorney at Law
Offices of Ronald S. Webster,
985 North Collier Blvd,
Marco Island,
FL 34145
Subscribe to:
Posts (Atom)
