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Tax Ramifications of a Short Sale 

Do You Know What a 1099-C Means?

 

 
 
Tags:  reducevmortgage  payments  Avoid  foreclosure  short  sale  mortgage  reduction  specialists  debt  negotiations 
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Published:  April 06, 2009
 
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Slide 1: Tax Ramifications of Short Sales Do You Know What a 1099-C Means? As interest rates continue to rise and properties continue to drop in value, many families are finding themselves in a place where the value of their home is worth less than their mortgage. On top of this problem, many home owner’s mortgage payments also continue to rise, leaving many without the means to pay them, and facing foreclosure, with little to no knowledge about the tax ramifications of their problem, or their options. One option for homeowners in this situation is to sell their home by short sale, which is where the bank allows the homeowner to sell their house for less than what remains on the mortgage. If you are considering a short sale for your home, it is important that you obtain as much information as possible about the process, including the possible tax ramifications you could be facing. “Very few homeowners actually understand the tax ramifications of foreclosure, which can involve issuing a 1099-C to the homeowner/borrower,” says a representative from www.sellhomeowner.com, a short sale specialist company that helps stop foreclosure in Portland, Oregon. “Anytime a loss is created on a property owned by the borrower, the IRS views this loss as income to the borrower. Lenders can write off this loss by issuing a 1099-C to the borrower.” A 1099-C is the notice given to the debtor and the IRS that the debt has been cancelled. The amount of the debt is now considered taxable income under IRS regulations and must be included on the debtor's tax return. Luckily, banks are so loaded with paper work that many times they fail to even send a 1099-C since the fine from the IRS for not filing a 1099 is only $50.00. In this case, the IRS would not know about the loss anyway. For example, if a homeowner has a mortgage of $300,000 and the bank agrees to accept a short sale of $265,000, according to IRS code, the homeowners has actually made a profit of $35,000 (the short sale amount) and is eligible to receive a 1099 for that loss incurred by the bank. If you are in a situation such as this, one good resource to turn to is the HomeOwner Debt Forgiveness Act, signed by President Bush, which generally allows taxpayers to exclude income from the discharge of debt on their principal residence. If the home is an investment property and not primary residence, the homeowner may still be able to show insolvency, and use an IRS form 982 to avoid the taxes on investment or speculation properties. Lastly, it is important to remember that you are not alone in your situation. Thousands of homeowner across the country are facing foreclosure, don’t let embarrassment stop you from reaching out for help. For additional more information on short sales or preventing foreclosure, visit http://www.sellhomeowner.com. Tax Ramifications of a Short Sale Page 1 of 1 www.SellHomeOwner.com RE Acquisitions

   
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