Short sale - Relocation assistance - taxable?

[Judy rocks]

My client received $3,000 and a 1099 Misc for relocation assistance on a short sale of rental property. Is this taxable?

[appelman]

Yes.

To the best of my knowledge, it is fully taxable. Line 21.

[Roberts]

“While there is no IRS directive that I can point you to, the Internal Revenue Service has consistently held that governmental payments made under governmental programs for the promotion of the general welfare are not includible (sic) in an individual recipient’s gross income (general welfare exclusion). This includes borrower incentive payments received under any TARP program including the borrower relocation incentive under HAFA. However, to the extent that moving expenses are tax deductible, a borrower in a HAFA transaction must reduce the moving expenses by the amount of the relocation incentive before itemizing this expense. In other words they can’t double dip.”

That's from the Treasury Department Homeownership Preservation Office

I'd say as long as their forgiven debt isn't being taxed, this isn't taxable either.

[appelman]

I can't find a primary cite, either.

But the fact is the banks are issuing 1099's, and all secondary sources I've consulted seem to agree that it is taxable income.

[S T]

If you do a "google" research seems like there are different programs for Property Relief, debt cancellation, short sales, and "Relocation Assistance"

Note the OP in that it is a "rental property" and the T/p received the assistance and the 1099 Misc,

I have no cite or reference, however, due to the fact it was rental property, I would be thinking the possibility that "Assistance and 1099 Misc" would be taxable ? Might be different if it was the T/P's primary residence?

Great Post!

Thanks,

Sandy

[Judy rocks]

Like this

I'd like to further research this one. Do you have a cite from the Homeowner Preservation Office where you found this. Thanks!


QUOTE=Roberts;155124]“While there is no IRS directive that I can point you to, the Internal Revenue Service has consistently held that governmental payments made under governmental programs for the promotion of the general welfare are not includible (sic) in an individual recipient’s gross income (general welfare exclusion). This includes borrower incentive payments received under any TARP program including the borrower relocation incentive under HAFA. However, to the extent that moving expenses are tax deductible, a borrower in a HAFA transaction must reduce the moving expenses by the amount of the relocation incentive before itemizing this expense. In other words they can’t double dip.”

That's from the Treasury Department Homeownership Preservation Office

I'd say as long as their forgiven debt isn't being taxed, this isn't taxable either.[/QUOTE]

[Roberts]

I'd like to further research this one. Do you have a cite from the Homeowner Preservation Office where you found this. Thanks!

It was emailed to an accounting website trying to get clarification several years ago.
If it was a RENTER that received this - yes I'd say it is taxable but why on earth would a renter be receiving moving assistance from the bank?
If it is the owner that received this - I'd say it is not taxable and is part of the short sale incentive which will end up in a loss. Why wouldn't the payment be an offset of the losses which are being disallowed?

In what box is the sum on the 1099 MISC?

[JohnH]

I'd guess the renter is receiving a relocation payment because there is time remaining on the lease, but the lender wants to gain possession of the property in foreclosure in order to make it ready for sale. The lender doesn't want to assume all the risks and recordkeeping associated with being a landlord. I've known a couple of situations in which a landlord paid a renter to vacate early. One was seriously delinquent in rent but the landlord decided paying them was cheaper than going through the eviction process. (that is often the cheapest and most efficient way to get a high-problem renter out, but most landlords miss this because they make a short-sighted emotional decision rather than a business decision). In the other case, the landlord had an unique opportunity to sell the property at a huge gain but the sale was contingent on the rental contract being void.

[S T]

John H raises a very good insight - Guess we are unclear on the OP, is it the Property owner that Short Saled the property and then received the 1099 MISC, or is it the Renter of the Property that received the 1099 MISC

then still unclear whether or not this is subject to "Taxable Income" for the Moving Assistance-Relocation

My mind can wander with reportings

Sandy

[Judy rocks]

Property owner got the 1099 Misc

for rental property that he sold at a short sale

John H raises a very good insight - Guess we are unclear on the OP, is it the Property owner that Short Saled the property and then received the 1099 MISC, or is it the Renter of the Property that received the 1099 MISC

then still unclear whether or not this is subject to "Taxable Income" for the Moving Assistance-Relocation

My mind can wander with reportings

Sandy

[Roberts]

for rental property that he sold at a short sale

Then in my opinion I'd offset the amount of loan that was forgiven in the short sale and if that loss is deemed not taxable because they qualify as such, the payment isn't taxable. If the forgiven loan is taxed - the 1099 is by default taxed.
Even if the bank is the payer of the funds, it was likely sourced from the Federal Government as part of the incentive program to get people to flow through the bailout program. (The Mortgage Forgiveness Debt Relief Act and Debt Cancellation - include the 1099 on form 982)

[New York Enrolled Agent]

FWIW - is this an example of a cash-for-keys program? Take a look at an IRS training document.

http://apps.irs.gov/app/vita/content/15/15_02_010.jsp

[ChEAr$]

The key is still

the fact that it was rental property.

How could any funds received not be taxable?

[Steve Stang]

My situation is one where a renter was provided with $5,000 for relocation assistance in TY2018 from the new property management company to get occupants out of the property in order for the new owner to rehab. They issued the renter/tenant a 1099-Misc. Since he was not a property owner and the owner wasn't going through any HARP or similar home preservation program, I can't see a way to not make this misc Line 21 income. Unless I'm missing something. Any thoughts or citations?