Congress Looking To Change Short Sale Tax Implications

September 14, 2007 Posted in Economics, Finance and Lending, For What Its Worth, Real Estate News 

The Bush White House endorsed two new bipartisan bills aimed at eliminating the 1099C lenders are required by law to issue to sellers who "benefit" from debt relief realized with a short sale. The current tax code treats this debt relief as earned income. With the proposed legislative changes to the tax code, sellers would be off the hook for this increased tax burden. 

Comments

8 Responses to “Congress Looking To Change Short Sale Tax Implications”

  1. Danny DeAngelis on November 18th, 2007 7:19 pm

    I’m one of those homeowners thinking about a short sale. Can anyone tell me a time frame on this bill passing?

  2. Bob on November 18th, 2007 8:27 pm

    No one knows at this point, Danny. After moving through the House in less than a week, it was sent to the Senate and is now in the Finance Committee, where it has been for 6 weeks with nothing happening. It appears that it will take some calls to Senators to get them to move on this.

    This bill would only apply to debt forgiveness on acquisition debt, or purchase money loans. If the loans are the results of a refi, then they wouldn’t qualify. There may be other options available for you to get around the phantom tax.

    Feel free to ask any questions you may have.

  3. Patrick on December 22nd, 2007 11:44 am

    I am involved in a short sale right with the closing set for Jan 08. Supposing the bill doesn’t pass for another 6 months or longer, do you think the new bill would apply to people who did a short sale several months earlier?

  4. Danny DeAngelis on January 17th, 2008 7:24 am

    I owe 435,000 on my loan. If I short sale my house for 335,000 and I get a 1099C for 100,000. Can the 100,000 loss offset the 1099C. My tax consultant said it would. I just want to make sure.
    Does anyone know?

    Danny DeAngelis

  5. Bob on January 17th, 2008 8:50 am

    Is this a personal residence? Generally, the loss on the sale of a personal residence is a nondeductible personal loss. There may be exceptions.

    Here are two resources from the IRS:

    Publication 523 - Selling Your Home

    Topic 409 - Capital Gains and Losses

  6. Travis on February 16th, 2008 7:47 am

    You should go and talk to a good accountant. There is a form 982 to fill out. I was involved in a short sale in Michigan in 2007. If you fill out form 982 you can deduct a huge amount of “tax gains” from your 1099 that you received from your mortgage company. What form 982 basically says is that you are “insolvent”. You add up whatever assets that you have (car that’s paid for, guns, etc) and that value of those assets is all that you are required to pay for. They say that you could have sold them to pay the debt. So if you did a short sale and the bank lost $50,000 and you were 1099′d for that amount, but your personal assets are only worth $1000.00, then you only have to claim $1000.00 as income instead of $50,000. …….check it out!

  7. Chris on February 20th, 2008 12:47 am

    Travis is spot on! 1099C can be offset by insolvency. Simply stated - your liabilities are greater than your assets - no tax implication - but you need a good CPA! Great write up Travis!

  8. Bob on February 20th, 2008 12:55 am

    And Chris is spot on about the need for a CPA. Don’t do it yourself. If you get it wrong, you lose.

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