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It's the end of 2010 and all the homeowners who completed a Short Sale, Foreclosure or Loan Modification are wondering what to expect in regards to the tax returns. Well, first of all the difference between the loan amount and the sale price will be considered as the income to the homeowners that were involved in Short Sale, Foreclosure or Loan Modification Process. Example:
You borrowed $400,000 and your property is sold for $320,000. There will be a cancellation debt of $80,000. The lender, at the end of the year, will have to send the Form 1099-C (Cancellation of Debt) to the borrower, showing the amount of debt canceled if the forgiven amount $600 or more. The good news is that you may be able to exclude part or all of this income if:
1. The debt was qualified principal residence indebtedness;
2. You were insolvent immediately before the discharge;
3. The debt was canceled in a Title 11 bankruptcy case;
4. You have non-recourse loans.
This exclusion of debt became available after the Mortgage Forgiveness Act was signed in 2007 and extended until 2013. The Act allows you to exclude the income realized as a result of Loan Modification, Short Sale or Foreclosure. However there is a limit on the forgiven debt up to $2 million ($1 million if married, filed separately).
The homeowners will have to file Form 982 with they taxes in order for them to cancel some or all of the forgiven debt. If you are using the form only to report the exclusion of forgiveness of qualified principal residence indebtedness as result of foreclosure on your principle residence, you only need to complete lines 1e and 2 on the form 982. If you kept ownership of your home and modification of the terms of your mortgage resulted in the forgiveness of qualified principal residence indebtedness, complete lines 1e, 2 and 10b. You can get the form by downloading from http://www.irs.gov/pub/irs-
One more time, please, consult your tax professional or CPA while doing your taxes this year. If you need to Short Sale you property, please, give me a call at 562-334-7393.
Sincerely,
Ihor Pochay
Real Estate Broker/REO & Short Sale Specialist
Team Pochay Realty
Cell: (562)334-7393
ihorpochay@hotmail.com
www.MyRealtorIhor.com
http://shortsaleyourhome.blogspot.com/
DRE# 01772584
