Think hard before walking away from your home or ceasing payments on credit cards etc...... (pay, million)

[Chromekitty]

I have just learned that someone who I know well, had a car repossession in 1997/1998. This same person paid off a school loan in 2009 with a settlement. Yesterday she received a statement from the IRS looking for back pay for this "income".

I know these are tremendously hard times and people are losing so much but just be careful. At some point the debt you walk away from will be considered income and you will have to pay the IRS their share.

[mathjak107]

as far as i know homes are exempt until 2013 from having taxes due on short sales .

[Tallysmom]

Originally Posted by mathjak107

as far as i know homes are exempt until 2013 from having taxes due on short sales .

Does that include HELOC's? I haven't run into anyone who's had that sort of tax problem, but I thought I heard something about it being a possibility....

[Gandalara]

Originally Posted by Tallysmom

Does that include HELOC's? I haven't run into anyone who's had that sort of tax problem, but I thought I heard something about it being a possibility....

According to the IRS:

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?

No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?

Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

[wheelsup]

Originally Posted by mathjak107

as far as i know homes are exempt until 2013 from having taxes due on short sales .

Any home is as long as your can prove you are insolvent at the time. You just need to confirm with the bank, that they won't pursue it as well.

[berdee]

Originally Posted by Chromekitty

I have just learned that someone who I know well, had a car repossession in 1997/1998.

A repo vehicle is considered returned merchandise and a 1099-c shouldn't be issued since 1099-c's are not for returned merchandise. If someone does get a 1099-c for a repo then they should file a dispute with the IRS.

This same person paid off a school loan in 2009 with a settlement. Yesterday she received a statement from the IRS looking for back pay for this "income".

I know these are tremendously hard times and people are losing so much but just be careful. At some point the debt you walk away from will be considered income and you will have to pay the IRS their share.

If a person receives a 1099-c from a junk debt buyer then the 1099-c must show the amount that was due to the original creditor at the time the account was charged off. It cannot include any interest and fees that were incurred after that date while in the hands of a CA or JDB. That puts the JDB's in between a rock and a hard place with the IRS. Typically the JDB's have little or no paperwork from the original creditor, because of that they cannot determine what the true amount is.

There are a lot of exceptions as to whether a 1099-c should be issued or not when it's a school loan debt.

Your friend would be wise to discuss this with a tax professional that is well versed in 1099-c's or even with the IRS themselves, that should go for anyone who receives a 1099-c for any type of debt.

[mathjak107]

Originally Posted by Tallysmom

Does that include HELOC's? I haven't run into anyone who's had that sort of tax problem, but I thought I heard something about it being a possibility....

no it doesnt include helocs only first mortgages

[mathjak107]

Originally Posted by wheelsup

Any home is as long as your can prove you are insolvent at the time. You just need to confirm with the bank, that they won't pursue it as well.

yep, it differs state to state. some states like new york have the bank having to make a choice. if they foreclose they give up the right to sue. other states can go after you after a short sale.

heres a summary i found

"Each non-recourse state has its own anti-deficiency statutes that prohibit lenders from seeking judgments. In a few cases, anti-deficiency statues do allow lenders to collect a limited amount of money from the borrower (such as the difference between the debt and the fair market value of the property).
Note that in some states (such as California) non-recourse laws apply only to “purchase money” loans (i.e. original home loans that are used to purchase property). Almost all HELOCs and home equity loans are considered recourse loans and lenders for these loans may sue borrowers to recoup loss. (Except in some cases where the second mortgage lender forces the foreclosure. See: HELOC Foreclosures). There has been some speculation that mortgage refinances do not constitute “purchase money” loans. However, there have been no cases to determine this issue one way or the other.

Anti-Deficiency / Non-Recourse States
Alaska
Arizona
California
Connecticut
Florida
Idaho
Minnesota
North Carolina
North Dakota
Texas
Utah
Washington

One Action States
In some states, lenders are only permitted a single lawsuit to collect mortgage debt. This plays out differently depending on the state’s laws. In New York, for example, a lender must choose between the actions of foreclosing on the property or suing to collect the debt. The following states have some type of one action statute:

California
Idaho
Montana
Nevada
New York
Utah "

[freemkt]

Originally Posted by Gandalara

According to the IRS:

Does the Mortgage Forgiveness Debt Relief Act apply to all forgiven or cancelled debts?

No. The Act applies only to forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes. In addition, the debt must be secured by the home. This is known as qualified principal residence indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million or $1 million if married filing separately.

Does the Mortgage Forgiveness Debt Relief Act apply to debt incurred to refinance a home?

Debt used to refinance your home qualifies for this exclusion, but only to the extent that the principal balance of the old mortgage, immediately before the refinancing, would have qualified. For more information, including an example, see Publication 4681.

The government is broke but the homeowner goodies keep on rolling...

[Chromekitty]

Thanks for the info, I will send this to her to follow up on. She never received a 1099-c, she just received the notice from the IRS. It does sound like she needs to dispute this. Again thanks!

Originally Posted by berdee

A repo vehicle is considered returned merchandise and a 1099-c shouldn't be issued since 1099-c's are not for returned merchandise. If someone does get a 1099-c for a repo then they should file a dispute with the IRS.

If a person receives a 1099-c from a junk debt buyer then the 1099-c must show the amount that was due to the original creditor at the time the account was charged off. It cannot include any interest and fees that were incurred after that date while in the hands of a CA or JDB. That puts the JDB's in between a rock and a hard place with the IRS. Typically the JDB's have little or no paperwork from the original creditor, because of that they cannot determine what the true amount is.

There are a lot of exceptions as to whether a 1099-c should be issued or not when it's a school loan debt.

Your friend would be wise to discuss this with a tax professional that is well versed in 1099-c's or even with the IRS themselves, that should go for anyone who receives a 1099-c for any type of debt.