1099 Short Sale
what is the rate for taxation on forgiving debt ...If 2 people are divorced who gets 1099 will it be splitt....the house was in both names I dont think it was given to one person or the other since they both didnt want it....
If a foreclosure action is fillied but the house does not go to auction becuase it was bought short will it still show up on sellers credit as forclosure since the action was all ready fillied and closed
The "income" resulting from forgiven debt is subject to tax by the IRS as would be ordinary income.
As you must know by reading the many posts on this subject on TCI, in the majority of short sale situations, the Seller can demonstrate to the IRS that the "income" should be exempt from taxation.
Most certainly the fact that the mortgage was in default, a foreclosure lawsuit was filed, and possible judgment in foreclosure was granted might appear on credit reports... as would a Sheriff's Sale or Trustee's Sale.
There are stages in the foreclosure process... the step to avoid, the last step is Sheriff's Sale, Trustee Sale, or any forced liquidation of the mortgaged property (vs. voluntary, preforeclosure sale).
Preventing THAT from appearing on one's credit report is a good thing.
Thanks short sale pro .........I really appriciate all your advice
Is there anywhere I can find out perphaps exactly why the 1099 tax liability is usually exempt? I would like to explain this to the homeowner so they won't be shocked when they get a 1099 at the end of the year.
Quote:
On 2004-11-06 10:50, remaxryan wrote:
Thanks short sale pro .........I really appriciate all your advice
Go to Barnes and Noble or any comprehensive bookstore. Grab and carry a copy of the latest version of the US Tax Code.
The Basics as Set Forth in the Code
IRC Sec. 108(a)(1)(B), which provides that "gross income does not include any amount which would be includable in gross income by reason of the discharge of indebtedness of the taxpayer if the discharge occurs when the taxpayer is insolvent," was modified by The Bankruptcy Act of 1980. Although that provision of the IRC may exclude from gross income the gain from a discharge of indebtedness for taxpayers that are insolvent, IRC Sec. 108(a) (3) limits the excludable portion to the amount by which the taxpayer is insolvent. For example, if a taxpayer owns assets with a fair market value of $50,000 and has liabilities of $75,000, only $25,000 (the amount by which he is insolvent) can be excluded if the liabilities were discharged. Therefore, the calculation of insolvency becomes very important.
[addsig]
So basically they are liable for the difference between whatever FMV you can prove, and the amount the loan was paid off for.