Comments on: Short Sale Tax Relief: Update on the Mortgage Forgiveness Debt Relief Act / Mortgage Cancellation Relief Act

By: Tax Penalties

Tax Penalties — Sat, 21 Nov 2009 09:19:38 +0000

Assuming the debt is forgiven, the Mortgage Foregiveness Act will help you avoid taxation on any cash that you pulled out and put back into significant improvements in the home. For any add'l cash that you used to pay bills or other things you are out of luck. However, you may qualify for insolvency or the bankruptcy exclusions. Hope this helps.

By: Chandler AZ CPA

Chandler AZ CPA — Sat, 14 Nov 2009 06:59:55 +0000

As a CPA who specializes in real estate taxation, there is no requirement to show the "evidence" to the IRS in the tax return. But you must disclose to the IRS that you are not treating this amount as income because you meet the insolvency exclusion. Obviously you don't know whether you can actually meet the exclusion until you perform a detailed insolvency calculation. Make sure to use a tax professional.

By: Paul B. Sundin, CPA

Paul B. Sundin, CPA — Sat, 14 Nov 2009 06:51:42 +0000

Jay – I am a CPA and I specialize in real estate taxation. Lenders are required by law to issue a 1099-C (debt cancellation) if the debt was recourse and cancelled by the lender. It is between the lender and the taxpayer to notify the IRS (via the tax return) that the cancellation of debt income is not taxable income.Calculating insolvency is definetly tough, but how to calculate it is explained in more detail here ==> http://www.sundincpa.com/real_estate.php

By: Paul Sundin, CPA

Paul Sundin, CPA — Sat, 14 Nov 2009 06:40:04 +0000

Danielle – I am a CPA and I specialize in real estate taxation. Each person's situation is unique of course, but there are a few things that are important to consider. As a general rule, the clients that I have with tax problems are the ones who pulled cash out of their homes and used it for purposes other than significant improvements to the home (bought cars, vacations, paid off credit card debt, etc). This is generally the case with both principal residences and rental properties. But even if this occured, most taxpayers will still be able to exclude cancellation of debt income based on the bankruptcy or insolvency exclusion. Make sure you have a CPA review your situation.

By: azeemi

azeemi — Tue, 10 Feb 2009 03:19:48 +0000

So we had taken out a second on our home to do remodeling and pay off some medical bills from my husband being ill. We did an ARM loan and was told at the time that we would be able to refinance at the end of our 3 years. Once those 3 years had hit we went to refinance and the value of our home had dropped $60,000.00. Our payments were going up $450.00 every 6 months. We are almost ready to close the deal on a short sale and I was looking forward to this passing but it sounds like it does not help people like me? Can anyone clarify on this?

By: dean grazio

dean grazio — Thu, 18 Dec 2008 13:46:32 +0000

I'm afraid that too people know about these to help stop the increase in foreclosures… this should be published in a national newspaper

By: RT

RT — Sat, 18 Oct 2008 08:26:54 +0000

Danielle We had a Certified Tax Person with a good Tax preparing record (NOT HR BLOCK). Yes we were still sent the 1099 and we turned it in with our 2007 taxes year along with copies of the agreement from the mortgage company. And the Debt was forgiven.

In regards to the state Taxes, we didn't have that issue.

This has really helped out a lot of Americans who underwent circumstances or hardships beyond their control.

Although i wonder if something like this would have helped "JOE THE PLUMBER" although his situation is different i hear their have been Tax leans placed on his property… We were fortunate no Tax leans were placed on our property at time of the Short Sale.

By: Danielle

Danielle — Mon, 13 Oct 2008 15:33:53 +0000

Someone who has done their taxes with a forgiven short sale on it can you please lay it out for me. Did you get a 1099? Was there no fed taxes to pay on the forgiven debt? What about state taxes? Just wan tto know what I am in for in Feb. We were forgiven on a short sale about $60,000.

By: Jay - The Phoenix Re

Jay - The Phoenix Re — Fri, 18 Jul 2008 12:37:58 +0000

RT – so sorry to hear of your troubles. Absolutely 150% family comes first! I hope your wife and kids are fully recovered, or at least well on their way. Hang in there!

By: Rick

Rick — Thu, 17 Jul 2008 23:03:41 +0000

RT I must say I also went through the short sale process and due to my company going under the bank approved the short sale. For those who have the misconception you can just do a short sale you are completely wrong. The bank looks through all you financials to see if you truly can't pay you mortgage. I have seen others have their short sale declined because they could afford to pay their mortgage but didn't want to be upside down in their house and were wanting to just walk away and avoid the foreclosure but their plans did not work. I feel for you and your family RT and hope your wife gets better.