Even Losing your home in forclosure may not be the end of the nightmare.
August 21st, 2007 categories: Local San Diego News You Can Use, San Diego Real Estate, San Diego Real Estate News
We are all pretty much now used to the 1099 shortfall , whereby the lender gives the seller of the short sale a 1099 reflecting the amount of the debt relief, which may be taxable as ordinary income.
Had you ever heard that the lender can do the same for foreclosed property owner if the value of the foreclosed property is deemed less than the market value?
In 2005 and 2006, the Sub-Prime loans that were made to weak borrowers are and will be putting many households in jeopardy of either a potential short sale necessity or facing foreclosure. Because there was so little down payment required, the value of many of these homes may be worth less than the amount owed.
Instances of receiving a tax bill were noted recently and the home owners were horrified to find that they also owed taxes on the debt relief. You might need to prove that you are insolvent to avoid having the forgiveness of debt recognized as income, as is so often the case in a short sale.
If you or anyone you know is facing foreclosure, get some professional tax advice and quickly, or you may be facing some serious tax consequences.
The IRS ,for now at least, is not explaining this new conundrum and how the tax agency applies the tax rules on forgiven debt. One thing is certain. Foreclosure is now one more possible way homeowners can feel the indignity of the 1099 shortfall tax burden if financial calamity strikes them.
Connie Perry Realtor, Pacific Grove, Monterey, Carmel, Pebble Beach, ocean front homes, beach property…
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