I apologize ahead of time , but another or same scenario question on a personal residence, converted to rental, and a short sale that has potential COD. I have read most all of the posts, researched and have even completed a few of these over the last year or two - somehow just always question myself on the reporting.
This will be a 2013 transaction and possibly even a 2014 transaction depending on how fast the lender moves on the short sale.
Taxpayer purchased real estate in 2002 and occupied as a personal residence - Refinanced in 2005 (equity market then in Calif was good) and obtained $ 68K to pay off credit card debt – still occupied the property as personal residence
In April 2009, t/p moved out of state - (real estate plummeted on value) and could not sell, so converted to a rental at monthly rents less than cost of mortgage and HOA fees, maint, etc.
Market has recovered some, t/p has a loan (refi in 2005) that will be called due or refinanced in 2015 - terms on interest rate, etc are really not good on the loan, tenant has moved out, etc, etc.
Decision has been made to try to capture the best Sales Price (now 2013) and hope that the lender will accept a short sale - T/p cannot carry the loan without a Tenant - So basically foreclosure or Short Sale.
With this little “novel of history” I know that on reporting - it will be Schedule E for rents/expenses, process as any other regular disposition of rental property on 4797, etc. I am good there. Just treat as normal disposition - Presumption that due to refinance this is a recourse loan (question has been asked but not answered by realtor, short sale coordinator, nor lender) Hopefully with the short sale, this will produce a breakeven and/or small loss and help to offset the potential COD that will be reported (anticipated) on the 1099C
The question keeps arising as to whether or not T/p will qualify for the Mortgage Debt Forgiveness Act extended through 2013 (realtor and short sale coordinator keep mentioning), however, when I review - all I see is that the short sale will produce COD income on this Rental.
T/p will not qualify for 982 insolvency - we have made some “trial efforts” at the Insolvency worksheet and her retirement and stock accounts provide more asset value than liability.
Question I am asking is - am I missing something in this? Not qualified for Personal Residence, not qualified for the Trade or Business outlined - Form 982 Insolvency does not appear to work. T/p is just going to have to pay taxes for the very bad decision to use the property as a bank account to pay off credit card, etc debt.
Thoughts are more than welcomed on this issue, as I have non tax professionals involved, as in realtor and short sale coordinator, that are only looking at them receiving a commission on a closed transaction -
Thanks for your thoughts
Sandy
This will be a 2013 transaction and possibly even a 2014 transaction depending on how fast the lender moves on the short sale.
Taxpayer purchased real estate in 2002 and occupied as a personal residence - Refinanced in 2005 (equity market then in Calif was good) and obtained $ 68K to pay off credit card debt – still occupied the property as personal residence
In April 2009, t/p moved out of state - (real estate plummeted on value) and could not sell, so converted to a rental at monthly rents less than cost of mortgage and HOA fees, maint, etc.
Market has recovered some, t/p has a loan (refi in 2005) that will be called due or refinanced in 2015 - terms on interest rate, etc are really not good on the loan, tenant has moved out, etc, etc.
Decision has been made to try to capture the best Sales Price (now 2013) and hope that the lender will accept a short sale - T/p cannot carry the loan without a Tenant - So basically foreclosure or Short Sale.
With this little “novel of history” I know that on reporting - it will be Schedule E for rents/expenses, process as any other regular disposition of rental property on 4797, etc. I am good there. Just treat as normal disposition - Presumption that due to refinance this is a recourse loan (question has been asked but not answered by realtor, short sale coordinator, nor lender) Hopefully with the short sale, this will produce a breakeven and/or small loss and help to offset the potential COD that will be reported (anticipated) on the 1099C
The question keeps arising as to whether or not T/p will qualify for the Mortgage Debt Forgiveness Act extended through 2013 (realtor and short sale coordinator keep mentioning), however, when I review - all I see is that the short sale will produce COD income on this Rental.
T/p will not qualify for 982 insolvency - we have made some “trial efforts” at the Insolvency worksheet and her retirement and stock accounts provide more asset value than liability.
Question I am asking is - am I missing something in this? Not qualified for Personal Residence, not qualified for the Trade or Business outlined - Form 982 Insolvency does not appear to work. T/p is just going to have to pay taxes for the very bad decision to use the property as a bank account to pay off credit card, etc debt.
Thoughts are more than welcomed on this issue, as I have non tax professionals involved, as in realtor and short sale coordinator, that are only looking at them receiving a commission on a closed transaction -
Thanks for your thoughts
Sandy
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