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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4182
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Questions for Stephen G Hi Stephen Wondered if you would

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Hi Stephen
Wondered if you would be kind enough to help me . I am in the process of completing escrow documents for the short sale of my primary residence in Las Vegas . The lender has issued an approval letter accepting the offer and has agreed to forgive the debt and issue a 1099C

I have received two docs from the escrow company CERTIFICATE FOR NO INFORMATION REPORTING ON THE SALE AND EXCHANGE OF PRINCIPLE RESIDENCE and a substitute form 1099S. I have to complete , sign and return only ONE of the TWO per instructions of the escrow company

In CERTIFICATE FOR NO INFORMATION REPORTING form I do not meet ONE of the assurances ie PART 11 assurance 3 which I would answer FALSE since I rented my property for NON PROFIT to a family friend for 2 years ( 1may 2011 to 30April 2013).

I however also owned and lived in my property for more than two years in a five year period to date of closing which will be end of August 2013or before . I purchased the property as my primary residence in April 2007 and lived in it from then till May 2011
September 1,2008 to 31August2009 ( I occupied property)

September1 2009 to 31 August2010 ( I occupied property)

September1,2010 to May2011 ( I occupied property)


For 2011 tax year I filed my returns and reported the property mortgage interest paid and taxes paid under itemized deductions . I did not claim any rental income or expenses because it was a RENTAL FOR NON PROFIT . For 2012 I did not file a return because I did not meet the income threshold , I was unemployed and had only incomes from 1099INT and 1099DIV

My question is does the assurance in PART 11 , No3 in the CERTIFICATE FOR NO INFORMATION REPORTING pertains to investment property rentals only or TO RENTALS FOR NON PROFIT AS WELL and should I complete the CERTIFICATE FOR NO INFORMATION REPORTING anyways ??

If I complete and send substitute form 1099S the fact that I rented my property for non profit will this now exclude me from qualifying for any tax exemptions under primary residence , debt relief act , capital gains and losses for a short sale ?? (property sale price $153K , balance owed on mortgage- indebtedness $219k,property purchase price April 2007 $275k , cash down payment $ 60000), deficiency waiver $66 K)

Thank you
Deven
Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

Stephen G. :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything that is not clear.

Customer:

hi Stephen

Customer:

Are you there

Stephen G. :

Well, first of all you are selling the property at a loss so there's no profit to be concerned about reporting & therefore in terms of the 1099-S there's no gain to report anyway. When you say you rented for "non profit" what exactly do you mean?

Stephen G. :

I need to check on a ruling; I'll be right back;

Customer:

I rented to a friend to occupy the property and take care of it while I was away and am in south africa taking care of family matters

Customer:

I intended to return to the property and occupy it but things changed here so i am staying longer . Once my tenant moved out 30 April 2013 my financial situation required that I try to short sale the property

Stephen G. :

When you say you rented to a "friend", you should know that if you actually received rental income it should be reported, even though your expenses may have exceeded the income you received.

Stephen G. :

The forgiveness rules apply through the end of 2013 on your principal residence, so that will take care of any income generated by the 1099-C.

Customer:

The rental income exceeded my expenses because I did not charge a security deposit , pet deposit and further the rent was always late so I had to cover the mortgage out of my savings

Stephen G. :

I understand but that doesn't negate the necessity to report the rental income. Just so you are aware of the rules.

Customer:

Should I try to amend for 2011

Stephen G. :

When is your expected closing date on the transaction?

Customer:

Have to submit by early next week told escrow company buyer wants to close sooner before the 30 August

Stephen G. :

OK, I'm trying to follow your dates in your question, give me a minute.

Customer:

Thank you , If I complete form 1099S and submit will this disqualify me from a tax exemption on the deficiency ?

Stephen G. :

I don't know what the Certificate for No Information Reporting says as this must be a bank form; can you tell me exactly what these items say?

Customer:

sure

Customer:

give me a sec

Customer:

t is titled "Certification For No Information Reporting On The Sale Or Exchange Of A Principal Residence". It is used to determine if we have to report the sale to the IRS on form 1099-S, Proceeds From Real Estate Transactions.

Stephen G. :

What are the assurances exactly, particularly No. 3 that you are concerned about?

Customer:

sec please

Customer:



Part II. Seller Assurances


Check "true" or "false" for assurances (1) through (5), and “true,” “false,” or “not applicable for assurance (6).


True False


[ ] [ ] (1) I owned and used the residence as my principal residence for periods aggregating 2 years or more during the 5-year period ending on the date of the sale or exchange of the residence.


[ ] [ ] (2) I have not sold or exchanged another principal residence during the 2-year period ending on the date of the sale or exchange of the residence.


[ ] [ ] (3) I (or my spouse or former spouse, if I was married at any time during the period beginning after May 6, 1997, and ending today) have not used any portion of the residence for business or rental purposes after May 6, 1997.


[ ] [ ] (4) At least one of the following three statements applies:


The sale or exchange is of the entire residence for $250,000 or less.


OR


I am married, the sale or exchange is of the entire residence for $500,000 or less, and the gain on the sale or exchange of the entire residence is $250,000 or less.


OR


I am married, the sale or exchange is of the entire residence for $500,000 or less, and (a) I intend to file a joint return for the year of the sale or exchange, (b) my spouse also used the residence as his or her principal residence for periods aggregating 2 years or more during the 5-year period ending on the date of the sale or exchange of the residence, and (c) my spouse also has not

Customer:

Just number 3 that I will have to answer FALSE

Customer:

If I complete form 1099S are there implications to this when filing my returns in other words could the debt 1099C be taxable ?

Customer:

Are you there ?

Stephen G. :

Temporary rentals while you are attempting to sell the residence (or waiting for the real estate market to improve) do not constitute "using the residence for rental purposes". You should answer "True" to that question. Besides, you meet the IRS criteria for the definition of a principal residence. That form doesn't go anywhere. So, indicate "True" & don't be concerned about it.

Stephen G. :

Did you type something? If so, it didn't come through?

Customer:

So you would advice complete the CERTIFICATE FOR NO REPORTING , should I also try to amend 2011 filings I have read that if you rented your property for no profit you can file under itemized deductions , mortgage interest , real estate taxes so I am wondering if you are required to report this rental income, also if your rental income was more than your rental expenses for up to 3 years then t is a rental for profit , but I only rented for two years

Stephen G. :

Did you pay any tax in 2011?

Customer:

No received a refund

Stephen G. :

What I mean is not did you pay with your return, but did you get everything back?

Customer:

Sorry I dont understand

Stephen G. :

Did you pay any tax on your return in 2011 or if you had tax withheld, did you get it all back?

Customer:

No paid no taxes

Stephen G. :

So there's no point in filing an amended return to claim a loss on the rental; figure depreciation expense, etc.

Customer:

Okay

Stephen G. :

So Just answer all those questions as "True" & when you receive the 1099-C you'll need to complete & file Form 982 with your 2013 return to eliminate the forgiveness of indebtedness income

Stephen G. :

There's no reporting of the residence exchange; you can't claim a loss on the sale or exchange of a personal residence.

Customer:

ok because it was not an investment property

Stephen G. :

correct

Stephen G. :

If you need to contact me again with any tax or financial questions, you can just ask for "Steve G" at the beginning of your question. Again, please remember to rate my response. Bonuses, where you think they are warranted, and excellent ratings, are always most appreciated. Thanks again for using JustAnswer.com.You may get a short survey from the site; if it isn't too much trouble I would appreciate it if you would answer it; the survey results are used to rate our performance;

Customer:

So they will be no taxes payable on the debt , only other income for 2013 will be 1099INT , 1099DIV

Stephen G. :

Correct, if that's the only income you have.

Customer:

So 2012 did not file because only income to report was 1099INT anD 1099DIV , so no need to go back there ?

Stephen G. :

Yes. All I can tell you is technically you should have reported the rental income; in order to establish the loss you need to file; but since there's no tax due, there would be no penalty for not filing;

Stephen G. :

The only time you don't need to report rental income is for a vacation home which is rented for 2 weeks a year or less.

Customer:

ok

Customer:

Could this put up a red flag for a audit or im just being anxious here

Stephen G. :

If I knew the answer to that, I'd have more money that the PowerBall winners.

Customer:

HA , Would you advise getting a CPA to help me with my 2013 filing

Customer:

or I could use tax software

Stephen G. :

Not really, the 982 form is pretty simple; in your case it will only have 1 or 2 numbers on it. We can help you with that here if you have any trouble; best to use one of the online tax services; just to be sure there's no math errors, etc.

Customer:

sure , further only OTHER income to report will be 1099INT and 1099DIV

Customer:

presently unemployed

Customer:

Okay so I fill out true to that assurance on certificate for no reporting because it applies since mines was a temporary rental and I dont need to amend 2011, or 2012 years . When filing will there be a line on the form to disclose teh type of rental do you know ?

Stephen G. :

NO. There's nothing to report about the rental.

Customer:

ok

Customer:

Stephen last question if I did rent for profit ( investment ) will I still be able to claim a tax exemption because of primary residence criteria

Stephen G. :

Look, there's no such thing as renting for "non profit"; the term doesn't exist for tax purposes. Let's stick to your facts; you aren't in any special category because you think you rented for "non-profit".

Customer:

This was the publication I picked on the IRS website hence my questions


Not Rented for Profit



If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.


Where to report. Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. For example, if you are filing Form 1040, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses on the appropriate lines of Schedule A (Form 1040) if you itemize your deductions. If you itemize your deductions, claim your other rental expenses, subject to the rules explained in chapter 1 of Publication 535, as miscellaneous itemized deductions on Schedule A (Form 1040), line 23, or Schedule A (Form 1040NR), line 9. You can deduct these expenses only if they, together with certain other miscellaneous itemized deductions, total more than 2% of your adjusted gross income.

Presumption of profit. If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit.
Stephen G. :

That doesn't mean you don't report your rental income. They are simply talking about claiming losses. There's nothing different here than I told you. You should have reported the rental income.

Customer:

Understand

Stephen G. :

Just follow my directions; I don't know what else to tell you. If you wanted me to explain all that to you, it would have been better to make that part of your question.

Customer:

Stephen I will I will submit the form with teh TRUE assurance and follow the steps . Can one get a transcript of the chat emailed or I just copy and paste

Stephen G. :

We can't exchange emails; they come out all Xs; the site doesn't allow us to contact customers outside of JustAnswer.com; only the site has your email.

Stephen G. :

You can cut & paste or you can always come back to this conversation any time; it isn't erased.

Stephen G. :

Are you all set now for the time being? I need to take care of a couple of other customers who have been waiting to pick my brain, what little there is left of it. Thanks again for asking for me.

Customer:

sure thanks I will cut and paste and touch bases again when it comes to tax filing questions , will rate you to .Thanks

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4182
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 5 other Tax Specialists are ready to help you

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Stephen G.
Stephen G.
Sr Financial & Tax Consultant
3648 Satisfied Customers
Extensive Experience with Tax, Financial & Estate Issues