The housing market plummeted in 2009 and the US saw a skyrocketing rise in foreclosures, which in turn left many financial lenders on the street. An unsuccessful attempt was made to stabilize the government. Their goal was to provide money to financial mortgage institutions, not homeowners. In most cases, taxpayers will be provided with a tax form known as 1099-C if they had to go through a short sale or actual foreclosure process. In connection with these cases, the financial mortgage lender is responsible for providing these 1099-C tax forms and, in turn, will not pursue judicial deficiencies. It was said that this is great news. With this method, the amount of debt canceled is shown as income. Keep in mind that there are always exceptions to the rule.
Below are some of the exceptions to the rule that you will find.
Exception A – If you had a foreclosure on your home, column # 2 of your 1099-C will list that amount as a forgiven debt. Under normal circumstances, during a short sale of your home by local authorities, a financial mortgage lender will buy your home back from you and it will then become a so-called REO, also known as Real Estate Owned. The main goal of a financial lender is to resell a house as soon as possible, but in some cases it can take them literally months. There is a light fixture at the end of the tunnel, however the debt forfeited will be calculated based on the home’s fair market value, which you can find in box 7 of your 1099-C tax form. This is an important aspect because the difference between the loan amount and the fair market value is the amount you should be worried about and this amount will be shown in field # 2. Keep in mind that if this is your primary residence, the 2007 Mortgage Debt Relief Act states that the canceled amount of debt is not earmarked for you as income.
Exception B – If you had a short sale of your home, it technically means that your home was sold with the consent of your financial lender at a reduced rate. For a short sale, you will still receive a 1099-C tax form. When they calculate your repaid debt, they will use the actual price at which you bought your home. Be aware that if this is your primary residence, the 2007 Mortgage Debt Relief Act says that the canceled amount of debt is not listed as income for you and tax Form 982 must be prepared.
Exception C – If your canceled debt is rental property or other type of business debt, the loss of the property will be recorded as a sale. In this case, you will be excluded from the calculation of loss or profit. To make sure this is done correctly, it is recommended that you hire an experienced professional to help you deal with debt relief.
Exception D – Proceeds from debt write-offs will be eliminated from the insolvent purchaser to the extent that the liability exceeds the fair market value of all assets. In other words, if you have a debt-to-asset ratio in favor of debt, you should choose not to include a specific amount in your income. EXAMPLE: If you have a canceled debt of $ 100,000.00 and you have $ 180,000.00 in liabilities and $ 150,000.00 in assets, you can write off $ 30,000.00. This will leave you with a message of $ 70,000.00 instead of $ 100,000.00.
Exception E – This is extremely important! In some cases, if you are married and both of your names appear on the title deed, you may receive two 1099-C tax forms and be able to cancel the entire amount owed. This is instead of one form written out to both persons in the document. This is an important conversation with your tax professional. You never want the amount shown in box # 2 to appear twice on the form.
Exception F – Income from debt cancellation will be completely eliminated upon termination of bankruptcy.
The information above can help you understand the ins and outs of short sales and foreclosures and their impact on your taxes. Knowing the implications ahead of time helps you avoid getting stuck.#aware #consequences #foreclosures #Return #selling #short #Tax