My lender is very open to a deed in lieu of foreclosure, and I just got off the phone with them again. They said they will NOT pursue a deficiency judgement ;D , but they will issue a 1099-A for tax purposes.
Here’s my confusion. How do they know what the loss/gain will be until they sell the house? Surely they can’t issue this form if they don’t know how much they’ll get for the property.
Also, do I have to hold off doing my taxes until all this is over with? I do my taxes religiously every year, and I don’t want to end up with fines for late filing, etc. Can I deal with it on next year’s filing?
I know I need professional advice, and I will get it nearer the time, but just wanted to see if anyone here had any insight.
Not a tax professional, but I’m pretty sure that if they give you a 1099 it will be for 2007 and you will have to deal with it at the begining of next year not for 2006 taxes.
Also, I’ve been told that there is a “hardship” type form you can fill out with the IRS when a lender issues a 1099 on a short sale. It should eliminate or greatly reduce any tax you would owe. It’s worth looking into if they do end up sending a 1099.
I’ve read that to. When was the last time the IRS told anyone they wouldn’t have to pay tax on income? You will have to be totally destitute and prove it.
If you are thinking about using this as a reason to get a ss from someone, it’s mute because you won’t get a decent discount. So forget about it and make money some way else.
Not quite. You just have to be “insolvent.” When you file your taxes for the year in which you receive the 1099, include a statement that you seek to have this income not taxed because you are “insolvent.” You will need to send a signed, dated balance sheet that shows all of your assets and liabilities (make sure your liabilities exceed your assets), and include a statement about how much money you make and why you were unable to pay the debt.
I know from personal experience that this can work.
You’re right on both counts. The IRS lady I just talked to said that if the lender sends the 1099-A for 2007, I will have to include this when filing next year. Just waiting on a call back from the lender to confirm what year they’re making this for, so I can get my taxes done for 2006 asap.
She also said that I need to make a list of my assets vs liabilities right away if I want to go for insolvency, as it matters just before the deed in lieu is executed, rather than after. She said a balance sheet is fine, and then I would fill out the appropriate form when filing.
Thanks to all for your input. Things are a little clearer now.
