I saw this article and it scared me enough to let others see it.
I am mentoring, training and teaching agents on a regular basis how to perform short sales correctly and almost always agents I have talked to never perform one of the most important steps before even starting a short sale... Sending the client to a qualified CPA/accountant who is versed on short sales.
Why?
This is very, very important for several reasons.
1. In a lot of short sales there can be a “taxable gain” on the sale. That’s right your client lost money, and owes the IRS money, it goes on their tax return as income!. I didn’t make that rule that is just how it is. Even in some rare special cases, there can be tax liability on a principal residence. In almost every situation there is a taxable gain on secondary, investment properties. In secondary, primary, and investment homes, there are also cases where there is no liability that is why this is such an important step. You cannot do any short without this, as this factor could prevent the short sale from even taking place. As agents it is not our job to interpret tax code or law, but not disclosing to the client, or giving them the advice to see an qualified professional could make you lose your license.
1. In a lot of short sales there can be a “taxable gain” on the sale. That’s right your client lost money, and owes the IRS money, it goes on their tax return as income!. I didn’t make that rule that is just how it is. Even in some rare special cases, there can be tax liability on a principal residence. In almost every situation there is a taxable gain on secondary, investment properties. In secondary, primary, and investment homes, there are also cases where there is no liability that is why this is such an important step. You cannot do any short without this, as this factor could prevent the short sale from even taking place. As agents it is not our job to interpret tax code or law, but not disclosing to the client, or giving them the advice to see an qualified professional could make you lose your license.
2. Tax law when it comes to short sales can be very complicated. As a real estate agent we cannot give any type of tax advice and there are a lot of short sales that you will run into that the seller may have IRS tax liability. How can you represent them without knowing the ramifications? Guess what if? If they have a tax liability and you did not give them the advice to go see a qualified accountant, the liability can fall on you. Don’t think so? I was just called in on a short sale case as a short sale expert where the seller sold his house, got a $50,000 taxable gain on his income and because the real estate agent did not disclose that he could possibly have a gain or to refer him to a accountant, he lost his license and got sued in the process. If the clients do have tax ramifications, how can they make the right decision without knowing where they will end up?
3. A CPA can also look at the client’s full financial picture, and if the client has other assets, the CPA can guide the client on protecting the asset. In cases where the clients may have liability, the CPA can determine if the client is insolvent or not, which could make them eligible for no liability. Believe me the IRS’s definition of insolvent is extremely complicated, and not something you want to try and attempt to figure out, leave it to a professional in that field. This can seriously help you down the line in the short sale process, as you will have a picture painted to help the client get what is need for their best interest.
4. IRS tax law changes on a frequent basis and as real estate agents we are not supposed to interpret tax law or try to interpret it for our clients. By doing this you can open yourself up to a serious amount of liability down the road. It is a CPA’s job to be versed on all the tax codes and law. A lot of you may not know this, but there are a few very complex scenarios that can occur with a short sale and tax liability. Even though with my short sale experience I am aware of these scenarios I do not try to give advice to clients, I send them to the CPA for the advice.
These are absolute imperative steps before you go into the short sale process. Skipping these can leave you open to serious liability or even land you in court or lose your license.
by Brandon Brittingham
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