Taxes after short sales
|Posted by Manila Mail under Real Deal|
By Jocelyn P. Porteria
It’s nice to be back!!! Here I am again for 2012 providing useful and handy information to you regarding hot topics on Real Estate. I know there are lots out there but since it is that time of the year again where we need to file our income taxes, this maybe for you. Some of you early birds may have filed by now. Well, it’s not yet late and you better read this and may save you hundreds of bucks and amount you owe IRS.
If you have done short sales or your home was foreclosed and you receive 1099-C (Cancellation of Debt) from your mortgage company for the difference, don’t panic. The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure and short sales. It may not be your principal residence but you may still qualify for insolvency. The forgiven debt may qualify under the insolvency exclusion. You are insolvent when your total liabilities exceed your total assets. Assets include everything you own, e.g., your car, house, condominium, furniture, life insurance policies, stocks, other investments, or your pension and other retirement accounts. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding. This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately).
I sent detailed information on this to my clients as soon as I get back early February. Lenders usually sent 1099-C first week of February. I heard a couple of my clients were paying taxes due to short sale from previous years because they forgot about this. If you are experiencing the same thing, file an amendment which is applicable as far as the last three years. Most accountant and tax preparers know about this but be prepared just in case. Bring Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness and attach to your tax return. You can get this form in any of these: If you use a computer to fill out your return, check your tax-preparation software. You can also download the form at IRS.gov, or call 1-800-829-3676. If you call to order, please allow 7-10 days for delivery.
If you have not received 1099-C from your mortgage company, call them as they are required to send Form 1099-C, when they cancel any debt of $600 or more. The amount cancelled will be in box 2 of the form. Check the amount and if it does not look right, call them.
Remember, losses from the sale or foreclosures of personal property are not deductible. Do not declare losses from short sale or foreclosure since it is already forgiven by this Mortgage and Debt Forgiveness Act. You cannot hit two birds in one stone in this case.
Note: Jocelyn Porteria is a Realtor® licensed in VA. She earned a designation of ABR, GRN Accredited Buyer’s Specialist and GREEN Designation, CDPE Certified Distressed Property and Short Sale Expert, (SFR) Short Sales and Foreclosure Resource. For more info, call her at 571-432-8335 or email at email@example.com for a free confidential evaluation of your individual situation, property value, and possible options. She is also an accredited agent of Ayala Land, SM Residences and Century Properties in the Philippines.