Tax liability

[neallove]

How do you tell a 50 year old grandmom that she owes 34,000 in tax because she did short sale on one of her rentals. Cancellation of debt of 100,000.

by email phone letter fax or in person

any known exception to the rule on cancellation of debt such as applying to other rentals.
(I do not think any e xists)

[JohnH]

It won't be easy, but for starters you might ask her if she'd rather pay $34,000 in taxes or $100,000 in mortgage debt, especially since the interest rate plus penalties on the taxes is a lower figure than what she would be paying on the mortgage loan.

Obviously she'd like to not pay either one, but then I'd like to not have to pay some of my debts too.

[taxmandan]

In person. By the receptionist. After she collects the prep fee.

Just kidding, I would give her the news in person, making sure she is sitting down and tissues are available. Why oh why can't they call and discuss the tax issues before they take such a course. I have a family member (not a client) who is going to make the same mistake soon, but they haven't asked for advice nor will I volunteer it, he wouldn't listen anyway because it doesn't fit with his narrative.

[RitaB]

Well

How do you tell a 50 year old grandmom that she owes 34,000 in tax because she did short sale on one of her rentals. Cancellation of debt of 100,000.

by email phone letter fax or in person

any known exception to the rule on cancellation of debt such as applying to other rentals.
(I do not think any e xists)

Well, for starters, don't call her Grandma.

OK, joking aside, she DID get outta paying $100,000. Maybe that will make her feel better.

I am actually kinda mad at her now. What's Granny's number? I'll tell her.

[JoshinNC]

Exceptions

How do you tell a 50 year old grandmom that she owes 34,000 in tax because she did short sale on one of her rentals. Cancellation of debt of 100,000.

by email phone letter fax or in person

any known exception to the rule on cancellation of debt such as applying to other rentals.
(I do not think any e xists)

Was she personally liable for the debt? Was she insolvent at the time of the debt cancellation? Did you also calculate her gain/loss on the disposition of the property through the short sale? Was there a loss? Will this loss, since it's deductible because it's biz property, offset some of he cancelled debt income.

Suggestions on how to break it to her include doing it in person, in a secluded room in your office where she can breakdown if necessary, with a copy of the relevant IRS Pubs printed and ready to go to show her why it's taxable along with a worksheet showing how you came to the income amount. Oh, and wear your big boy pants that day, you may be the only adult in the room once she gets this news.

My two cents.

[ChEAr$]

what about the property? Who wound up with it?

Or should that matter?

[Gretel]

How do you tell a 50 year old grandmom that she owes 34,000 in tax because she did short sale on one of her rentals. Cancellation of debt of 100,000.

by email phone letter fax or in person

any known exception to the rule on cancellation of debt such as applying to other rentals.
(I do not think any e xists)

Normally with a cancellation of debt for a business asset comes a sale of that business asset that can produce a loss or a gain. What is the bottom line for this sale?

[geekgirldany]

Normally with a cancellation of debt for a business asset comes a sale of that business asset that can produce a loss or a gain. What is the bottom line for this sale?

That is what I was thinking. I had a client that had short sales on 4 rental props. He ended up owing but not that much.

[JG EA]

How do you tell a 50 year old grandmom that she owes 34,000 in tax because she did short sale on one of her rentals. Cancellation of debt of 100,000.

by email phone letter fax or in person

any known exception to the rule on cancellation of debt such as applying to other rentals.
(I do not think any e xists)

Did you know someone could be a grandmom at 35? Would you feel better talking to her? Do you feel unable to hurt someone so old an frail as a 50 year old? You must be 20 something I'd say.

[taxmom34]

did she get a 1099C. i know of at least two people who did short sales on property and all is forgiven and no 1099's. i thought that was the purpose of short sales, bank agrees to take the property and sell it, & client gets off the hook.

[joanmcq]

Could qualify for the Qualified Real Property Business Indebtedness exclusion. Have you looked at form 982 and the exclusions? Calculated gain/loss? It would be rare that one short sale could result in all of the COD being taxable, unless, of course, it was all cash out refinance....

[Gary2]

Could qualify for the Qualified Real Property Business Indebtedness exclusion. Have you looked at form 982 and the exclusions? Calculated gain/loss? It would be rare that one short sale could result in all of the COD being taxable, unless, of course, it was all cash out refinance....

There's a significant question as to whether rental real estate, usually treated as passive, qualifies for the QRPBI exclusion.