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

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.

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?

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

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: <a href="http://www.irs.gov/publications/p523/index.html">Publication 523 - Selling Your Home</a> <a href="http://www.irs.gov/taxtopics/tc409.html">Topic 409 - Capital Gains and Losses</a>

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!

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!

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

I currently have about $65,000 in a 401k account. Would I have to liquidate that in the event of a short sale to prove insolvency? Or are certain assets that carry penalties exempt from that equation?

I heard today that all short sales have to be recorded as a forclosue, even if the short sale in not involved in a forclosure and the owner in not behind in payment. Does anyone know if that is true? I was told this would be recorded as a settled payment.

I need some help. I live in a house in Sacramento, and built a house in Utah that I was going to move to. Due to the drop in housing I couldn't sell either. I have a short sale on the Utah house for 300,000. but owe 500,000. and the bank wants me to kick in 10,000. to accept the short sale and will also send a 1099c to IRS. What should I do? Will I owe the IRS income tax on the 200,000 difference on the banks lose? Do I file bankruptcy or have to show insolvency? I'm at a lose as to what steps to take and the bank wants to close on this short sale in ten days! Need some real help ASAP!...Lance

Hi Lance, A safe bet would be that the Utah property is not treated as a primary residence and therefor the debt forgiveness could be taxable. Insolvency and BK are options, but you REALLY need to speak to a CPA before you close.

James, how the short sale is reported to the credit agencies is negotiable between you and the lender. That doesnt mean that the lender will negotiate; only that they are not obligated or legally required to report it in any one manner.

I have several llc partners in a condo deal. 3 either lost jobs, quit paying. The rest couldn't carry it or sell it at the price a year ago. The mortgagee just agreed to a short sale. The verbiage on the initial letter states the loan is being reported as "settled" (loan paid in full for less than original balance). They said they are required to issue a 1099-C "cancellation of mortgage" for the difference. Will the partners get hit for this as a gain? I've gotten different answers... thanks

Darren, that is a tax question that is out of my league.

Bob, thanks for the quick reply.

Bob: Thanks for the reply. I talked to a bankruptcy attorney today and he said I probably couldn't show insolvency and that a bankruptcy was the only way to resolve having to pay income tax on the $200,000. loss that the bank would file to the IRS on the 1099c. The bankruptcy would also protect my retirement, 401k, and some other assets. He still suggested that I talk to his CPA just to make sure that this was the best solution. Anyone out there in the same boat as I am please fell free to chime in on this. I don't think anyone seems to have a cut and dried answer to some of this!.......Lance <em>@Lance - thanks for getting back on this. Best of luck with this.</em>

I have a rental property that I need to short sale. I purchase the home for 299k and the short sale is set @ 170k. Will I have to claim as income and pay taxes on the different. Need a answer ASAP. Thanks!

I have a property in UT. An investment property that is rented but by far, less than what the mortgage is for. The home is also not worth what I paid for. I bought it for $350K and it's prb worth $180K ... if that. Here are my questions: 1) Can I negotiate the loan amount down with the bank? 2) Has the elimination of the 1099C bill passed, so I can short sale? 3) What is my credit consequences for doing a short sale? Thank you