short sale question/taxes California (clause, mortgage, mortgage, banks)
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I'm in the process of a Short Sale. Well, it was suppose to close by Dec. 24th 2012 but its looking like that might not happen. We are in Hafa program so we are suppose to get a good amount of money back but now I'm concerned about taxes and it not closing by the 31 of Dec. I was told by a tax person that if it didn't close by the 31st to just do a deed in lieu or something that was basically giving it to bank ??. I didn't think that was going to happen so at the moment I don't have my notes and exactly what she said. But, I'm wondering if it is in middle of sale will I still be ok. I really need some good tax advice but wanted to ask here first. We are still making payments because we were also told that as long as we made our payments we could qualify to buy another house within a year or sooner (this was told to us by a large bank lender) since we had to move because of a job transfer. Any advice appreciated! Thanks!
Talk to a CPA in California! Do not take the advice of anyone else on this forum that is not a CPA. There are very specific rules/regulations for the taxable consequences of a short sale that vary depending on your specific situation. It might still be better to take a short sale after the end of the year but you won't know for sure until you talk to someone that is qualified to give you the pros/cons/specifics of your options.
Talk to a CPA in California! Do not take the advice of anyone else on this forum that is not a CPA. There are very specific rules/regulations for the taxable consequences of a short sale that vary depending on your specific situation. It might still be better to take a short sale after the end of the year but you won't know for sure until you talk to someone that is qualified to give you the pros/cons/specifics of your options.
Nina is 100% correct, do not take Tax advice from anyone except from a trusted professional. On the other side of that equation, do not take Real Estate and Credit Reporting advice from anyone but a trusted professional. To suggest that a Deed in Lieu is a more favorable option than a Short Sale (without knowing your personal circumstances, granted) is just plain false.
Thank you for replying! I did talk to another CPA and it just seems that no one really knows a lot about the details of this program. But, I know they can still help me and start giving me advice. Just very frustrating. Especially when I thought it would close at least by mid Dec.! Not getting into details, I feel that we've had the worst luck and one thing after another has gone wrong! I'll be happy when I can be done with all this. Then, the stress of trying to buy a house where I'm currently living. I think you are in the area of El Dorado Hills, Serrano. I really hope more homes will come available in Jan. and Feb. or we're going to have trouble getting into something and more things to worry about! Thanks!
Thanks JLay too! I did think that was kind of bad advice about taking a deed in lieu, coming from a CPA. And that person had never heard of someone getting close to $17,000 back from the HAFA short sale when it is all done. Neither did my relator or the 2nd CPA that I talked to. But, I'm not arguing about that I just wish more professionals knew about all this. But, I guess there are so many different programs out there and so many different things that can go on...I just wish it could get done before the end of the year so that would be one less big headache to continue to worry about! Thanks!
Mortgage forgiveness act expires on December 31. It's been around for 5 years.
With the way congress is going in lame duck session and Obama desperate for tax revenue.
It's unlikely to get extended.
You will likely owe taxes on home when its eventually sold at a lost to the banks and be given a 1099-c.
Your time is running out quickly.
That's why the CPA said to get rid of home at all cost cause he/she is trying to save you on a huge IRS tax liability. Of course you will than need to fight with IRS that you are really poor and they will audit all your accounts if you fight the 1099 c cancellation of debt that occurs if you don't dump the house by December 31st.
Mortgage forgiveness act expires on December 31. It's been around for 5 years.
With the way congress is going in lame duck session and Obama desperate for tax revenue.
It's unlikely to get extended.
You will likely owe taxes on home when its eventually sold at a lost to the banks and be given a 1099-c.
This quoted portion is technically correct, yes. However the expiring "Mortgage Forgiveness Act" is not the only salvation for distressed Home Owners. There is the insolvency exception to tax liability. If you don’t qualify for an exception under the Mortgage Forgiveness Debt Relief Act, you might still qualify for tax relief. If you can prove you were legally insolvent at the time of the short sale, you won’t be liable for paying tax on the deficiency. Legal insolvency occurs when your total debts are greater than the value of your total assets (your assets are the equity in your real estate and personal property). To use the insolvency exclusion, you’ll have to prove to the satisfaction of the IRS that your debts exceeded the value of your assets.
Again, not familiar with the OP's personal circumstances, but in my experience insolvency is typically a primary trigger of a Short Sale or Deed in Lieu. In fact, most Lenders require the Mortgagor to provide them with a substantiated Hardship prior to considering either default work out.
So to reiterate, seek the guidance of a trusted and competant professional before doing anything.
Last edited by JLay36; 12-06-2012 at 10:02 AM..
Reason: typo's
This quoted portion is technically correct, yes. However the expiring "Mortgage Forgiveness Act" is not the only salvation for distressed Home Owners. There is the insolvency exception to tax liability. If you don’t qualify for an exception under the Mortgage Forgiveness Debt Relief Act, you might still qualify for tax relief. If you can prove you were legally insolvent at the time of the short sale, you won’t be liable for paying tax on the deficiency. Legal insolvency occurs when your total debts are greater than the value of your total assets (your assets are the equity in your real estate and personal property). To use the insolvency exclusion, you’ll have to prove to the satisfaction of the IRS that your debts exceeded the value of your assets.
Again, not familiar with the OP's personal circumstances, but in my experience insolvency is typically a primary trigger of a Short Sale or Deed in Lieu. In fact, most Lenders require the Mortgagor to provide them with a substantiated Hardship prior to considering either default work out.
So to reiterate, seek the guidance of a trusted and competant professional before doing anything.
The issue with the insolvency clause the OP (OP wants to buy new home immediately after short sale cause they haven't missed any payments).
I am pretty sure the OP isn't going to pass the IRS insolvency clause when the mortgage and forgiveness act expires.
Not that the OP is creating any fraud (OP is moving/job relocation).
But the past 3-4 years some people have gotten away with murder short selling their home and getting the 1099 tax liability waived and hoarding cash especially in Florida. After law expires IRS will have access to bank accounts to determine if you are insolvent.
That's why the CPA is rushing to get the home dumped by December 31st deadline.
The issue with the insolvency clause the OP (OP wants to buy new home immediately after short sale cause they haven't missed any payments).
I am pretty sure the OP isn't going to pass the IRS insolvency clause when the mortgage and forgiveness act expires.
Not that the OP is creating any fraud (OP is moving/job relocation).
But the past 3-4 years some people have gotten away with murder short selling their home and getting the 1099 tax liability waived and hoarding cash especially in Florida. After law expires IRS will have access to bank accounts to determine if you are insolvent.
That's why the CPA is rushing to get the home dumped by December 31st deadline.
What you're saying is not incorrect generally, we don't disagree there. But it's based on the presumption that we have all of the information (which we don't) and should not be taken by the OP as gospel..hence the guidance to seek professional (be it a CPA or preferrably a Mortgage Default Attorney) assistance to talk through the numerous options available to Distressed Home Owners. Anything else is speculation and irresponsible to opine.
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