I’ve come across some really great info from all you guys, however, we need to have a great big “Pow-Wow” and talk taxes… yes we all know that we can have a clean SS transaction less the deficiency judgement.
What I want to figure out is the 1099’s the H/O will get from the boatload of money we’ll make. I do know that with the exception of 2007.2008, and 2009 H/O will NOT have to pay taxes on our dough. However, I’m betting there is some sort of process that needs to be done. In other words i think the H/O’s have file something and file it with the IRS.
It is our repsonsibility as investors to make sure we provide the correct information to our clients (H/O’s).
So the questions is: what is the process, where can we learn more because today i picked up a SS and told the H/O the benefits as well the two downsides to this which is the deficiency judgement and having to pay taxes (1099) but i did indicate he WOULD NOT have to pay taxes, thanks to G Bush signing of the home relief act or whatever it’s called.
I can’t wait to see what others have to say. This is a hot topic around here. Homeowners are scared - they don’t even want to do a short sale. What they aren’t realizing is they could have tax issues even if they simply let it go. I am trying to find clarification on that.
Some states never have to worry about deficiency judgments such as my state, Arizona - they were never allowed. I always wondered if the lender after 2009 could come after the homeowner. Investment properties are another story of course, those are the ones that worry me because these clients of mine just want to let the property go. I think regardless if they foreclosure or do a short sale the lender can still come after them for a deficiency judgment or 1099 them. I am tired of the homeowners willing to just let the property go because of potential tax ramifications. I think the credit ding is much far worse but then again if you can’t afford taxes, well then… They definitely need more education. They can claim insolvency and just because they receive a 1099 for say 50k doesn’t mean that is the amount they claim as income. There is more to it than that. They figure wait so I make 35k a year and I could potentially receive a 50k 1099 so that means I have to claim 85k in total income. If that were the case, wouldn’t there be employment taxes as well? From my experience, it’s not as bad as it seems.
For now until the end of 2009, all that needs to be done is a Form 982 completed with taxes if they receive a 1099 from the lender. After 2009, its ol’ school again. They may get a 1099, may not.
Also, having been a licensed lender for many years now, I can tell you a foreclosure on credit vs. lates on credit are the equivalent of a car getting a headlight busted or being completely totalled. The lates followed by a paid in full will look like a responsible thing to do, you get behind, realize you can’t make the payments, so you put the house for sale and carry on, and in about 6 months will have a limited effect on the credit score. A foreclosure however is game over for at least 3 years.
They are two entirely separate things for HO to consider. A deficiency judgement can be pursued by the banks even after submitting a 1099 to the HO. Only a 1099-C is considered a “settled” debt. The issue is that some banks send these loans to collections even after a 1099 or 1099-C have been sent and Homeowners need to realize this when a collection agency is trying to collect on debt that has been settled due to disposition of property.