Posted by JHyre in Ohio on April 09, 2002 at 06:54:50:
In that instance, their is no foregiveness, the deemed sale itself gives rise to gain. Either way, it’s usually moot if we are dealing with a homeowner who gets the exclusion for selling his personal residence, as the Daves pointed out on the main board.
John Hyre
Tax Issues on Short Sales??? - Posted by JohnBoy
Posted by JohnBoy on April 06, 2002 at 02:17:44:
My understanding is that if a lender does a short sale then in order for the lender to write off the loss they would have to 1099 the borrower and the borrower would be taxed on that amount as income by the IRS.
Now I noticed that at least in my state anyway, there is a specific statue that says if a lender takes a deed in lieu of foreclosure, then the lender can not go after the borrower for any deficiencies they lose on the loan.
So if the lender wasn’t able to go after the borrower for any deficiency by law in the case of taking a deed in lieu of foreclosure, then I would assume they couldn’t 1099 you for anything either? Would that be correct?
Assuming that was correct, then what if instead of getting the lender to do a short sale, get them to just agree to sell you the property for the agreed upon price if the borrower were to agree to just deed them the property in lieu of foreclosure. Have the lender enter into a purchase agreement with you as the buyer subject to the borrower deeding the property over to them within X number of days. Then once you have the purchase agreement signed off by the lender to buy the property from them directly, then have the borrower just deed it over in lieu of foreclosure where they would not have to worry about getting a 1099 from the lender for the deficiency amount and get stuck with paying taxes on that to the IRS???
Would that work to get around the borrowers tax liability?
Re: Tax Issues on Short Sales??? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on April 06, 2002 at 16:07:49:
Unfortunately, you still have foregiveness of debt by the lender- and that’s what causes tax liability on the part of the borrower, unless they are insolvent or file bankruptcy, in which case the income is excluded.
John Hyre
Re: Tax Issues on Short Sales??? - Posted by JohnBoy
Posted by JohnBoy on April 06, 2002 at 20:02:50:
Lets say the amount of the debt owed does not exceed FMV and the lender excepts deed in lieu of foreclosure.
If for tax purposes a deed in lieu of foreclosure is considered a sale based on FMV then how could there be any forgiveness of debt by the lender? In essence wouldn’t they have agreed to purchase the property back for the amount of the debt owed?
Then if they later sold the property for less than that then wouldn’t that be their problem?