Short Sale Myth Part 2

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Education & Training with RealtyU

Tax Ramifications of a short sale ... prior to taking the Certified Short-Sale Professional course from RealtyU I was under the impression that you you would be given a 1099 for the amount that was forgiven by the lender.

YES and NO - If you are INSOLVENT (read previous blog http://activerain.com/blogsview/470140/Short-Sale-Myths-Part) than you can use IRS code 108(a)(1)(b) also known as 1401 which states that a borrower who is INSOLVENT at the time of the taxable event is exempt.

Additionally, President Bush signed the Mortgage Debt Relief Act of 2007 last December which allows those that experience a short sale be exempt from the first $2 million dollars of debt forgiveness if married filing jointly.

The types of indebtedness will be discussed in another blog.

Great class from RealtyU http://www.realtyu.com/ 

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Rainer
22,394
Cape Coral Florida Golf Course and Waterfront Homes
Gulf Coast Realty Network, Inc. - Cape Coral, FL
Good info....I just read several blogs that were of the myth variety, apparently!
Apr 15, 2008 11:31 AM #1
Rainmaker
1,145,197
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

Allen, I am NOT a tax man but it is my understanding that neither one of these things you sited would prevent the seller from receiving a 1099. However both may be able to to be used when the seller files their taxes to avoid paying any tax. Pres. Bush's thingie only applies to primary residences. 

Of course my standard response when asked these things is.... seek advice from a qualified tax accountant and/or attorney.

Apr 15, 2008 11:47 AM #2
Rainmaker
317,819
Monika McGillicuddy
Berkshire Hathaway HomeServices Verani Realty - Hampstead, NH
Southern NH & the Seacoast Area
Thanks for the information Allen. I have a seller going through this right now,
Apr 15, 2008 11:48 AM #3
Rainer
62,831
Allen C. Wright
RealtyU - Aliso Viejo, CA
NS, AHS, REPS
Bryant ... you may still receive the 1099  from the lender, but your accountant can use the IRS Code 108(a)(1)(b) to eliminate that as long as you were INSOLVENT at the time.  According to the class I took this particular part of the IRS works for INVESTMENT Properties as well.  I learned a lot from the class. 
Apr 15, 2008 11:51 AM #4
Rainmaker
1,145,197
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Thanks for clarity Allen. That makes sense.
Apr 15, 2008 02:06 PM #5
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Rainer
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Allen C. Wright

NS, AHS, REPS
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