would the lost money (for the bank) be regarded as Income gained for the former Home owner and then would be subject to the former Home owner owning the IRS
2007-12-19 02:05:55 · 8 answers · asked by voodoo 2 in Business & Finance ➔ Renting & Real Estate
would the lost money (for the bank) be regarded as Income gained for the former Home owner and then would be subject to the former Home owner owing the IRS
2007-12-19 02:17:27 · update #1
As of right now, yes that is true. It will be seen as income and the former owner who sold short will be taxed on the income. It's known as "phantom income" and there is a bill in both the House and the Senate to provide some relief for this.
It appears the other 2 answers thought this would be actual income for the homeowner. The sad truth is, the homeowner won't see any of this money, but will be taxed as though they did receive it. They will receive a 1099 from the lender and be forced to pay income tax on it.
I'm including an article about the phantom income bills. It's currently being worked on, but yes, as of right now, the homeowner will be taxed. This is something that everyone who is considering short sales or foreclosures needs to be made aware of.
2007-12-19 02:29:26 · answer #1 · answered by Quicken Loans 5 · 2⤊ 0⤋
Dear Voodoo,
No.
1.) Once the bank pays the former homeowner, the bank owns the house.
2.) The one foreclosed on owes the bank.
A) The bank would take a loss and
a1.) Write-off the debt, then
a2.) Sell the debt to a 3rd party debt collector who will then,
B.) Contact (via calls & letters) the one foreclosed on to collect the debt.
C.) The bank would have to tell the IRS about the loss to get the benefits of a tax write-off.
D.) The former homeowner would also have to file a 1099 form tell the IRS about the extra income from the sale of home and may subject to any taxes.
Does this help?
2007-12-19 03:31:23 · answer #2 · answered by J. Carlton Ford 1 · 0⤊ 0⤋
All these answers! Some right, some wrong.
Your bank has two options, depending on your state laws.
1 - You are still required to repay the loss amount. This is cash money that they already gave you, you bought a house with it. They want their money back, and you signed a contract to repay it.
2 - The bank claims the loss, and that loss gets turned over to you as income. Again, you had the money and you spent the money. That income is verified with a 1099 form. You pay income tax on the amount to both the IRS and your state.
Option 2 works out better for you, especially if your state income tax is low.
2007-12-19 05:23:17 · answer #3 · answered by Landlord 7 · 4⤊ 0⤋
In many situations, yes. It is becoming quite commonplace for lenders to issue Forms 1099 to defaulted mortgage holders for the deficiency amount after sale of the property.
For those who have deficiencies in the $100K range, that can be a rather unpleasant situation when filing a tax return.
2007-12-19 02:26:24 · answer #4 · answered by acermill 7 · 2⤊ 0⤋
The bank will mark this as a writeoff and yes you would need to clear the debt, as it will remain on your record for several years just as the foreclosure will and it will be impossible for you to get a mortgage and difficult to get unsecured credit or lease/buy a car. You would be a cash and carry person from this point!
2007-12-19 02:28:46 · answer #5 · answered by Anonymous · 1⤊ 0⤋
No you actually may even have a case of the homeowner still owing the bank for the remainder of the balance.
2007-12-19 02:14:14 · answer #6 · answered by Diane A 5 · 0⤊ 0⤋
Yes, it would. You will have to pay taxes on the amount that the bank lost in the transaction
2007-12-19 05:02:13 · answer #7 · answered by athomas4224 2 · 1⤊ 0⤋
Sorry, no.
2007-12-19 02:13:01 · answer #8 · answered by Bob 5 · 0⤊ 1⤋