Tax liability

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  • neallove
    Member
    • Jan 2008
    • 35

    #1

    Tax liability

    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
    Senior Member
    • Apr 2007
    • 5339

    #2
    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.
    Last edited by JohnH; 03-23-2012, 02:39 PM.
    "The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith

    Comment

    • taxmandan
      Senior Member
      • Oct 2005
      • 1037

      #3
      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.
      "A man that holds a cat by the tail learns something he can learn no other way." - Mark Twain

      Comment

      • RitaB
        Senior Member
        • Jul 2008
        • 1382

        #4
        Well

        Originally posted by 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)
        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.
        Last edited by RitaB; 03-23-2012, 03:03 PM.
        If you loan someone $20 and never see them again, it was probably worth it.

        Comment

        • JoshinNC
          Senior Member
          • Feb 2006
          • 1180

          #5
          Exceptions

          Originally posted by 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)
          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.

          Comment

          • ChEAr$
            Senior Member
            • Dec 2005
            • 3872

            #6
            what about the property? Who wound up with it?

            Or should that matter?
            ChEAr$,
            Harlan Lunsford, EA n LA

            Comment

            • Gretel
              Senior Member
              • Jun 2005
              • 4008

              #7
              Originally posted by 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)
              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?

              Comment

              • geekgirldany
                Senior Member
                • Jul 2005
                • 2359

                #8
                Originally posted by Gretel
                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.

                Comment

                • JG EA
                  Senior Member
                  • Jul 2005
                  • 2176

                  #9
                  Originally posted by 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)
                  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.
                  JG

                  Comment

                  • taxmom34
                    Senior Member
                    • Nov 2008
                    • 732

                    #10
                    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.

                    Comment

                    • joanmcq
                      Senior Member
                      • Jun 2007
                      • 1729

                      #11
                      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....

                      Comment

                      • Gary2
                        Senior Member
                        • Aug 2010
                        • 2066

                        #12
                        Originally posted by 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....
                        There's a significant question as to whether rental real estate, usually treated as passive, qualifies for the QRPBI exclusion.

                        Comment

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