Posts tagged foreclosure
Taxable Gain on Cancellation of Debt from Loan Modification, Short Sale, Deed in Lieu or Foreclosure
0In a loan modification, short sale, foreclosure or deed in lieu of foreclosure, the owner can receive “capital gain or loss” as in any other sale of real property. The owner will be subject to capital gains taxation on the “forgiveness of debt” or “cancellation of debt” but can also receive a credit for a capital loss (only on investment properties).
Taxable ordinary income is triggered by the lender’s forgiveness of debt of $600 or more. The lender is required to issue a 1099-C (“c” for cancelled debt) but it is the individual’s responsibility to recognize a capital gain.
Please consult with a CPA because each situation is going to be different.
Foreclosure and short sale tax liability
0If you are going to choose between a short sale or foreclosure you need to understand the tax liabilities of your decision. There is going to be a certain amount of cancelled debt in either scenario.
You should consult a CPA and/or tax attorney.
The following is general knowledge
- The lender will issue a 1099-C in a short sale (unless they pursue a deficiency judgment); C is for cancelled.
- The lender will issue a 1099-A in a foreclosure (unless they pursue a deficiency judgment); A is for abandoned.
- The 1099 issued is for the amount of the lenders loss from the short sale or foreclosure.
- The loss is almost always less in a short sale since there is additional cost when the bank forecloses and then has to sell the property. Short sales typically yield a higher purchase price and a lower loss to the lender.
- The homeowner may not be liable to pay taxes owed the IRS on the 1099 in either case with IRS Tax Form 982 (http://www.irs.gov/irs/article/0,,id=179073,00.html).
- The homeowner may not be liable to pay taxes owed the IRS per the Mortgage Debt Relief Act (MDRA) (http://www.irs.gov/individuals/article/0,,id=179414,00.html).
- State tax law regarding 1099’s on short sales and foreclosures is not necessarily in line with federal tax law.
- Generally speaking you won’t owe the IRS taxes on the 1099-C if you acquired the home with a purchase money loan (vs refinance loan)
Related Blogs
- Related Blogs on 1099
- Consultants: W-2, 1099 or Corp-to-Corp?
- Related Blogs on 1099-A
- Purgatory Dallas
Short sale reported as foreclosure on credit report
0Quite few people go through the process of a short sale of their home, but then the lender(s) will report it as a short sale on their credit report!
If a short sale is not reported accurately on your credit report then the account should be deleted per the FCRA (Fair Credit Reporting Act)
True, a short sale is less damaging to credit than a foreclosure but, unfortunately, short sale information isn’t accurately reported on people’s credit reports. Short sale reporting per se isn’t what destroys FICO scores, rather its the mortgage late payments that most homeowners have when they do a short sale that hurts their credit. A 90-120 day late payment on a mortgage account negatively affects FICO scores almost as much as a foreclosure. And, late payments negatively affect the opinion of an underwriter evaluating an applicant for new credit.
Starting over is proving to be very difficult in this climate. But, the good news is that the law is on the side of consumers. Inaccurately or erroniously reported accounts can, and should be, removed from credit.
Removing foreclosures or short sales from credit can be done legally in 6 easy steps. We want people to get a fresh start and not be needlessly hurt by inaccurate credit reporting.
Related Reading:
- Wells Fargo Short Sale / Credit Reporting No lates – Loan … – I am going to be recieving a short sale approval with Wells Fargo. I am current on my payments. Has anyone negotiated a Paid, Never late credit bureau.
How long does a foreclosure have to be listed on a credit report?
0As you read the law below (FCRA) you can see that it allows the creditor to report the derogatory item for no longer than 7 Years. This means they can report this derogatory item for 7 years- but not one day more. They can delete it prior to that time period referenced if you can get them to delete it. The bureaus will not delete items for you. But the creditor will!
From the Fair Credit Reporting Act:
605. Requirements relating to information contained in consumer reports [15 U.S.C. §1681c] (a) Information excluded from consumer reports. Except as authorized under subsection (b) of this section, no consumer reporting agency may make any consumer report containing any of the following items of information: (1) Cases under title 11 [United States Code] or under the Bankruptcy Act that, from the date of entry of the order for relief or the date of adjudication, as the case may be, antedate the report by more than 10 years. (2) Civil suits, civil judgments, and records of arrest that from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period. (3) Paid tax liens which, from date of payment, antedate the report by more than seven years. (4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years. (5) Any other adverse item of information, other than records of convictions of crimes which antedates the report by more than seven years. (c) Running of Reporting Period (1) In general. The 7-year period referred to in paragraphs (4) and (6) of subsection (a) shall begin, with respect to any delinquent account that is placed for collection (internally or by referral to a third party, whichever is earlier), charged to profit and loss, or subjected to any similar action, upon the expiration of the 180-day period beginning on the date of the commencement of the delinquency which immediately preceded the collection activity, charge to profit and loss, or similar action.