we are saling it for 350K less than what we owe, who pays taxes? I heard that we would get 1099. thats allot of money we'd have to come up with. We can't pay it! anyway to get out of it? or do we really have to pay it?
2007-09-14 10:41:25 · 13 answers · asked by Paris 1 in Business & Finance ➔ Taxes ➔ Other - Taxes
If you get a 1099 from the lender, then I'm sorry to tell you that you have taxes to pay on it. If the lender doesn't give you a 1099 then you don't have taxes to pay on it.
I've attached a link to an article about it.
2007-09-14 13:21:32 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Yes, you would normally have to pay taxes on that amount. There are some other considerations such as whether you have refinanced and what your true tax basis is. A good tax accountant or real estate attorney should be able to help you there.
You should definitely look at filing a form 982. As mentioned before if you can show that you are insolvent, which may or may not entail filing bankruptcy, then you can petition the IRS to exclude the forgiven debt on your taxes. The IRS code reads:
"Generally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you may exclude the amount of discharged indebtedness from your gross income".
One of the circumstances they are referring to is insolvency. Talk to a good real estate attorney about this option as it could save you a substantial amount of money. Otherwise, as a poster mention above, the IRS may end up garnishing your wages for the judgment amount.
I'm not too sure about the answer above stating that if the lender does not send you a 1099 that you don't have to pay taxes on the amount. I think you would be liable for the debt whether a 1099 is filed or not.
Hopefully you've contacted your lender about the possibility of a short sale already. You'll need to have your agent prepare a number of documents that the lender will want to see before they will accept an offer resulting in a short sale.
2007-09-14 14:14:49 · answer #2 · answered by JT 2 · 0⤊ 0⤋
Yes. The amount forgiven, as well as any sale price amount over your purchase price, are considered taxable income. If you do not have the money to pay the IRS, a tax lien will be filed against you and the IRS will probably garnish your wages (take a percentage of your earnings)
However, you are not alone in this. Thousands of people are facing the same situation. If the IRS prosecuted you, the tax courts would be overwhelmed. The IRS may be willing to settle with you for a lesser amount just to clear their books and free-up resources to go after people who can pay. You should consult with a tax attorney at the link below.
I'm a real estate attorney. A lot of my clients are facing the same thing as you. It will be tough for a while, but you should be able to get through it.
2007-09-14 11:30:49 · answer #3 · answered by mcmufin 6 · 1⤊ 0⤋
A key point that everyone has missed -- and a few surprise me for missing it -- is that although you MAY have a taxable gain on the forgiven debt, if you are insolvent at the time of the Cancellation of Debt there is generally NO tax due.
You are insolvent if you file bankruptcy, that's pretty easy to prove if you did file. However, you are also insolvent if at the time of the COD your debts exceed the value of your assets. That's the textbook definition of insolvency -- i.e. negative net worth -- and in that case NO TAX ID DUE at least to the extent that you are insolvent.
If you are insolvent, attach Form 982 to your tax return along with a statement explaining how you determined that you were insolvent. A simple balance sheet listing assets and liabilities immediately prior to the COD will usually suffice.
2007-09-14 13:41:06 · answer #4 · answered by Bostonian In MO 7 · 0⤊ 1⤋
Yes.
You will receive a 1099 on the difference between the outstanding balance and the short sell price.
If you sold for 350k less, you will have to pay taxes on $350,000.
2007-09-14 10:46:52 · answer #5 · answered by mister_galager 5 · 0⤊ 0⤋
Yes, sorry, federal income tax is due on forgiveness of debt. If you were insolvent or bankrupt at the time, you might be able to get out of it. If not and you can't pay it all at once, the IRS will set up a payment plan.
2007-09-14 10:53:27 · answer #6 · answered by Judy 7 · 0⤊ 0⤋
Dear Sir, I am taking exception to the other answers. First of all DO NOT SELL, without getting legal advice! Anyone who is selling a home at a substantial discount should have a real estate attorney at the onset. That being said, have your attorney review the offer, and verify market conditions for that area. If needed, document the property in question, with closed comparable, minimum 5. Check with CA. law as to distress sale, and forgiveness of debt , because of economic obsolescence. If you are selling because you are losing the house do to DE-valuation, economic decline, then prove you are selling at current market value, and have the local court review, and approve the sale. Short of that the other answer regarding filing for B/K is an out, and has the approx. same damage as deed in lieu. , or Short sale. The actual difference is approx. 30-50 pts. Hope this helps, Good Luck!
2007-09-14 11:09:52 · answer #7 · answered by Anonymous · 0⤊ 4⤋
Yes you will get a 1099 because forgiven debt is income.
2007-09-14 10:46:52 · answer #8 · answered by scottsmylie 5 · 0⤊ 0⤋
Debt forgiveness is the same as earned income. You will have to pay the taxes on it. It is better to pay the taxes than be forclosed or filing bk
2007-09-14 10:46:39 · answer #9 · answered by justin c 2 · 0⤊ 0⤋
Bostonianinmo is 100% on the money. The key issue is insolvency. If you were insolvent it may not be taxable or only partially taxable, but it must be accounted for on the return via the Form 982.
2007-09-14 17:20:23 · answer #10 · answered by exirsman 5 · 0⤊ 1⤋