Archive for the ‘Tax Attorney’ Category
Do Sellers in Foreclosure Have to Repay The $8,000 Tax Credit?
October 11th, 2011 | 
Author: Do Sellers in Foreclosure Have to Repay The $8,000 Tax Credit?
By David Halpern, Louisville Short Sale Expert, (502) 664-7827 or 895-3100
Sadly, some houses purchased with the $8,000 tax credit are now starting to head to short sale and foreclosure. Sellers are concerned they have to repay the $8,000 tax credit.
Sellers should seek an authoritative opinion from a tax attorney or CPA. I am a Realtor and not a professional tax advisor. The information here is general information provided to help sellers understand questions to ask a lawyer or CPA.
This is Part 2 of a 2-part series. See Part 1 at $8,000 Tax Credit Homes Are Starting To Fall Into Foreclosure and Short Sale.
What is the $8,000 Tax Credit and Does It Have To Be Repaid?
In 2009 and 2010 the government gave first time buyers an $8,000 tax credit upon purchase of a home. The money did not have to be repaid if the homeowner retained ownership of the house and continued to reside in the home for three years. Additional Information can be read here: First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2009 or 2010.
If the new owners sell the house within the first 3 years, there are guidelines that determine if they have to stroke a check back to the government. IRS Form 5405 is used to determine if the credit needs to be refunded. Again, always use a professional tax advisor to interpret all IRS forms and guidelines.
Here Are Excerpts of the IRS Form 5405
Notice that when the house sells, even if through foreclosure, there is a chance that the seller may have to repay the $8,000. It depends if the house was sold at a gain.
Homeowners in a financial bind who need to sell their house to avoid foreclosure should always seek a Realtor who specializes in pre-foreclosure short sales. A true professional short sale Realtor always strives to stay current on rules and regulations. Imagine selling your house and unexpectedly getting stung with an $8,000 tax bill.
If in the Louisville, KY area, please call me at any time at (502) 664-7827.
Submit Your Information Now or Call Us at (502) 664-7827
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Posted in Behind on Payments, CPA, Foreclosure, IRS Form 5404, Tax Attorney, Tax Credit | 
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Do I Have to Pay Taxes on a Short Sale? The 1099-C, H.R. 3648 and the Insolvency Rule
Do I Have to Pay Taxes on a Short Sale? The 1099-C, H.R. 3648 and the Insolvency Rule
By Dave Halpern, Louisville Short Sale Expert (502) 664-7827 or (502) 895-3100
Three possible answers to the question: Yes, No, Maybe.
Short sale listing agents should always disclose to their clients there is a possibility they will have to pay taxes on any forgiven debt.
Sellers are strongly encouraged to consult with professional legal and tax advisers.
Realtors who help clients avoid foreclosure should be knowledgeable of tax issues related to a short sale. The Realtor should disclose and direct the sellers to ask a CPA or tax attorney about the following issues:
1. What is a 1099-c (1099 income resulting from cancellation of debt)
2. What is the mortgage forgiveness act H.R. 3648 Mortgage Forgiveness Debt Relief Act of 2007
3. What is the insolvency rule? From the IRS site http://www.irs.gov/newsroom/article/0,,id=174034,00.html
“Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.”
4. Ask the tax adviser if there are any other tax issues that may be relevant to the sellers unique circumstances.
In very general terms, to be verified with a CPA or tax attorney:
The 1099-c is issued by the lender in the amount of the forgiven debt. Under certain circumstances the seller may have to pay taxes on the forgiven debt as if it was earned income.
H.R. 3648 is an amendment to the IRS code that under certain circumstances exempts the seller from paying taxes on the amount reported on the 1099-C.
The insolvency rule is a rule that under certain circumstance may exempt the seller from paying taxes on the amount reported on the 1099-C.
There may be other tax liabilities and tax exemptions. A CPA or tax attorney will have knowledge that is authoritative, in-depth and up to date.
Posted in 1099-C, CPA, Canceled Debt, H.R. 3648, Short Sales, Tax Attorney, Tax Consequences, Tax Credit |
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Can the Issuance of the 1099-c be Negotiated with the Short Sale Lender and Does It Matter?
Can the Issuance of the 1099-c be Negotiated with the Short Sale Lender and Does It Matter?
By Dave Halpern, Short Sale Expert (502) 664-7827 or (502) 895-3100
Isn’t the short sale lender obligated to report canceled debt to the IRS? Isn’t the borrower obligated to report canceled debt even if they didn’t get a 1099-c?
In a short sale, the lender allows the house to sell for less than owed. The short sale acceptance letter usually specifies if the shortage is forgiven or if the lender reserves the right to pursue the borrower for the deficiency.
The vast majority of short sales I have negotiated for clients in Louisville KY result in full and final forgiveness of the shortage. The lender issues the borrower a form 1099-C. The “C” stands for cancellation of debt. Copies of the 1099-c goes to the IRS and to the borrower. The canceled debt may become taxable income, depending on circumstances and exemptions that the borrower may be entitled to, to be verified upon consultation with a CPA or tax attorney.
Now Here Are The Big Questions
Occasionally I read about Realtors, short sale negotiators or lawyers who negotiated with the short sale lender to not issue the 1099-c to the borrower. I have two questions:
1. Isn’t the lender obligated to report to the IRS and to the borrower the amount of the canceled debt? How can this be negotiated between lender and borrower?
2. Even if the borrower does not receive the 1099-c, if he knows that the debt was forgiven doesn’t the borrower have an obligation to report the canceled debt?
Doesn’t the borrower have to report canceled debt whether or not a 1099-c was received?
I am not disputing the validity of the claim that the 1099-c issuance can be negotiated. I am trying to clarify my own understanding. This clarification may also be beneficial to other professionals helping borrowers avoid foreclosure by way of a short sale.
Submit Your Information Now or Call Us at (502) 664-7827 or (502) 895-3100.
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Posted in 1099-C, Canceled Debt, Foreclosure, Louisville, Real Estate, Short Sales, Tax Attorney, Tax Consequences |
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