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Lev
Lev, Tax Advisor
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How is the gov going to deal with all the folks who receive

Customer Question

How is the gov going to deal with all the folks who receive 1099's from their lenders for the forclosed properties? In our case it would increase our reported 'income' from $30K to well over $150K. Like so many others, we don't have the write off's (we're retired living on SSI) to offset and don't have the money to pay the taxes on that income.
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

Was part of your debt forgiven?

Did you receive 1099-C or any other forms? Please clarify?

 

Customer: replied 6 years ago.
<p>We are told that we <u>will be</u> sent a 1099 representing the difference between what they (the lender) sell the property for and what we owe on it. The property WAS worth approx $600K....now a 'fair market appraisal' tells us it's only worth $350K. The loan on it is $480,000. Therefore they say that after the sale we will receive the 1099 for aproximately $130K or more (depending on the final outcome of the transaction). How do we avoid this 'income' and how is IRS going to deal with this for so many??</p><p> </p><p>The sale has not been consumated YET. But the property is in Forclosure. It could be sold for very little IF it's sold on the court house steps.........If it sells to a potential buyer whom we know...it could sell for the Fair Market Value. </p><p> </p><p>Is there any 'new' news on how the IRS is going to deal with situations like this? Where the income is based on the foreclosure of homes...........or perhaps from credit card debt that becomes 'income'?</p>
Customer: replied 6 years ago.
I'm still waiting.
Expert:  Lev replied 6 years ago.

If you sell short - means the sale for less than the debt outstanding that is secured by the property - reportable on 1099-S - http://www.irs.gov/pub/irs-pdf/f1099s.pdf - should be treated as disposition of the property at the sale price.

The foreclosure itself - reportable on 1099-A - http://www.irs.gov/pub/irs-pdf/f1099a.pdf should be treated as disposition of the property at fair market value.

If the creditor sells the property after foreclosure - the person may receive both these forms.

 

If the creditor decides that the debt may not be collected - all or part of the debt may be forgiven. The amount of debt forgiven reportable on 1099-C - http://www.irs.gov/pub/irs-pdf/f1099c.pdf - generally is taxable, unless an insolvency exemption apply -- you should file a form 982 - to proof your insolvency - and might exclude all or part of canceled debt from taxable income.

This is true even if you did not file for bankruptcy.

Please see the IRS Publication 908 Bankruptcy Tax Guide - http://www.irs.gov/pub/irs-pdf/p908.pdf - with example of the form 982 on the last page.

 

The Mortgage Forgiveness Debt Relief Act of 2007 signed at the end of the last year provides additional relief - http://www.govtrack.us/congress/bill.xpd?bill=h110-3648 that allows exclusion of income realized as a result of modification of the terms of the mortgage, or foreclosure on your principal residence.

The Act applies to qualified debt forgiven in 2007, 2008 or 2009 - and only to forgiven or canceled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.

The amount of debt forgiven still must be reported on Form 982 and the Form 982 must be attached to your tax return.

 

Please be advised that you have only 6 month after tax return is due to file 982 form.

 

Customer: replied 6 years ago.
This is not our PRIMARY residence. Does all of this still apply?
Expert:  Lev replied 6 years ago.

If that is not your primary residence - The Mortgage Forgiveness Debt Relief Act of 2007 would not help,

but an insolvency exemption still may be used -- you should file a form 982 - to proof your insolvency - and might exclude all or part of canceled debt from your taxable income.

 

Please be aware if you have not timely file the form 982 with your tax return - you still have 6 more month to add it.

 

Customer: replied 6 years ago.
I've already done an acceptance.............last night - 12-3-08.
Expert:  Lev replied 6 years ago.

Unfortunately - the answer is not accepted.

 

I would appreciate you accept it now - as that is the only way I would be credited.

 

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Taxes, Immigration, Labor Relations