Canceled Debts and what your CPA better know.

December 16, 2009 By

By now you all have heard of the tax concerns for homeowners in respect to short sales and foreclosures. If you are a Realtor you know that you have to stay away from offering advice in a field you have no experience in. Even if you do have experience if you are not in fact the CPA for the client you are speaking with you risk major issues down the road.

Refer your clients to a qualified CPA with any and all questions related to thier taxes. If they are experiencing a short sale or forecosure it would not be the year for them to file on their own.  If you would like to refer your clients to IRS Form 4681 that will define much of what they might need to know. Even with this knowledge I suggest they use a CPA and particularly one familiar with short sales or foreclosures.

IRS Publication 4681: Canceled Debts, Foreclosures, Repossessions, and Abandonments (For Individuals)
Download the document at Link: http://www.irs.gov/pub/irs-pdf/p4681.pdf

Filed Under: IRS Form 4681, Tax Implications Tagged With: , , ,

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation

January 18, 2009 By

Quiet down out there! Just typing the title to this post I could almost hear the clamoring of questions. What the heck is it? How does this apply to my seller? Why is reading through the bail out documentation almost easier to understand? I won’t bother to try to say it better. I’m going to direct you right to the source on this one.

For the best details jump on over to the IRS web site. The page is located at http://www.irs.gov/individuals/article/0,,id=179414,00.html and has links to forms and publications to help clear up any questions you might have.

Remember to send your clients to a CPA with questions. If they plan on using the ‘tax professional’ sitting in their local supermarket they will end up with some bad information but some really great fruit! :)

Filed Under: Mortgage Debt Relief, Tax Implications Tagged With: , ,

Tax Implications and IRS Form 982

January 1, 2009 By

I am not a tax expert so what follows below is only for informational purposes and should be used as a starting point to further investigate the potential tax savings involved. It is absolutely worth your seller’s time and money to consult with an expert in these matters as it could save them thousands of dollars.

  • Can I avoid paying taxes on the forgiven debt if I was insolvent at the time of the short sale?

  • Do I have to file bankruptcy to be considered insolvent?

  • If you already used a short sale and paid taxes can you file an amended return and get a refund?

  • Does your real estate agent understand any of this?

  • Do you have to surrender your property in bankruptcy to be eligible for relief?

  • Does a form 982 have to be filed in order to be eligible for tax relief?

These are just a few of the questions that should be asked. But, it may very well be worth it. You can find Form 982 on the IRS web site located at www.irs.gov/pub/irs-pdf/f982.pdf

Filed Under: IRS Form 982, Tax Implications Tagged With: , ,

Tax Implications of Doing a Short Sale

January 1, 2009 By

Okay first remember my Disclaimer then read on. :)

IRS IMPLICATIONS OF DOING A SHORT SALE
Many homeowners do not realize that they may be in store for a large tax bill from the IRS after the short sale of their home. Every situation is different and you should absolutely have them contact an accountant or tax advisor before conducting a short sale to determine their potential liability.

After the sale of their home any deficiency, any amount the bank is short, they will have to write-off on their end. To do that properly they will submit a 1099-C to the seller for the balance owed that they were unable to pay back. The IRS may look at this as additional taxable income.

What are the odds that they will have that kind of money lying around after just going through a short sale on their home? Sellers should be very careful regarding the tax obligations BEFORE considering a short sale, deed-in-lieu-of-foreclosure or foreclosure.

The IRS will use the tax basis on their property to determine their tax obligations so you might want to be able to figure this amount out.

See our article on IRS Form 982. The form is used to request a “reduction in tax attributes” due to insolvency. This may allow them to avoid having to pay taxes on the debt relief they experienced doing the short sale. Definitely worth talking to a tax attorney or accountant about!

Filed Under: Tax Implications Tagged With: , ,