One of the most frustrating aspects of any short sale or loan modification, is dealing with the bank loss mitigation department.  Any person having been through this process  can attest.  First, going through the process you realize that the collection department is different than loss mitigation.  In other words, even if you have an assigned negotiator, does not mean the collections people will stop their harassing phone calls, letters, certified mailings, emails and other threats, they will not.  Additionally, you might start receiving mailings from bankruptcy attorneys, etc.  Finally, once your credit has become impaired expect your credit card companies, irrespective of your payment history, to cut your credit lines.  They figure even if you have a 25 year on time payment history with them, you are now a credit risk.

If you have successfully completed a short sale with the assistance of The Short Sale Negotiator Congratulations, but your work is still not done.  Two important steps remain, first is the daunting task of figuring out how to put this on your tax return.  The Law Offices of Tucker & Associates, PLLC, and their CPAs, can assist you with individual income tax preparation.  Next weeks blog, will talk about some tax strategies.  The following week, we will talk about the final step, credit rehabilitation. 

Please be aware that the number reported on a 1099-C is not always accurate.  This week I had a client bring in a 1099-C where Wells Fargo had reported the debt forgiveness was $420,000.  After many consultations with Wells Fargo, where they first started with a derogatory, and holier than thou attitude, we were able to get it corrected to $290,000.  The $130,000 correction, is a difference in $52,000 in taxation to the client.  In other words, pay close attention to the details.

Make sure your 1099-C is accurate, double, triple check all numbers.  Wells Fargo had put their BPO number in the file, but this client had netted them $130,000 higher than their BPO, it was over a million dollar loan.  Again, next week we will be back with some insights on how you report this debt forgiveness.

Until then, make it a great week. Guest Blogger blog.thenegotiatedsolution.com

Lawrence Tucker, Esquire, MBA

Principal, Tucker & Associates, PLLC

Legal Counsel, for The Short Sale Negotiator

George — As you know in the nearly two years I have been working as the lead attorney for The Short Sale Negotiator, taxes are one of the biggest considerations people faced with losing their home fret about. Like all situations, a client should never let the tax tale wag the dog. Ever since I graduated Georgetown University Law Center and Graduate School of Business, I have been highly involved in personal income tax from my half decade experience at the National Tax Office of KPMG and my near decade experience of running Tucker & Associates, PLLC, a full service real estate and tax law firm.

Essentially, the IRC mirrors the Section 121 requirements for mitigation of tax loss on Cancellation of Indebtedness Income. In other words, if you have met the 24 out of the previous 60 months occupancy requirements as a married couple your first $500,000 in debt ($250,000) is forgiven, much like your first $500,000 in capital gain would be excluded from income.

Clearly, for investment properties or second homes it is a different story. However, what we do at Tucker & Associates, PLLC, in conjunction with the Short Sale Negotiator is examine the complete picture to help assess the clients situation. Perfect example, we helped a charming couple short sale their investment property last week. They were concerned about the 1099-C they would receive from their lender for the $165,000 of debt we got them relieved from with no personal recourse. However, I reminded them they had substantial improvements which were basis additions to their property which helped their situation — in fact it is easiest to examine the numerics:

House Purchased for $650,000
20% down Payment $130,000
Loan $520,000
Lender Received $355,000 on Short Sale

The popular press, myths men, and some of the hucksters out there led them to believe they would have a $165,000 of ordinary income on their 2009 taxes! WRONG. Their basis was $650,000 the $130,000 they already lost (their hard earned down payment), would be netted out of their tax calculation. Additionally, they had receipts and bills for a $40,000 finished basement. Hence, they actually had a capital loss (since it was a transaction entered into for profit – an investment property) of $10,000!

Additionally, if you qualify as a real estate professional, meaning the majority of your income is earned in the real property trade, this loss would have been ordinary, and come straight off the top.

At Tucker & Associates, PLLC and the Short Sale Negotiator we not only level the playing field, we empower you with the knowledge to get your life back on track. Never believe that foreclosure or bankruptcy is a better option – you have two viable options – loan modification or our Hybrid Refinance if you want to stay — short sale if you rather go. Best of luck, remember knowledge is power!

Lawrence Tucker, Esquire, MBA, guest blogger.
Principal Attorney, Tucker & Associates, PLLC.

When you are faced with losing your home, whether it is voluntarily by means of a Short Sale Solution or by Foreclosure, it is important to understand the potential tax burden is a “Constant”. You will have to determine the right course of action to mitigate the ramifications of the forgiven debt. Do not be alarmed. Focus on the solution for the mortgage and the house. The mitigation of the 1099C for the potential taxes on the forgiven debt will fall into place.

Every one of our customers is scared of three things when considering a Short Sale Solution.

• How will this affect my Credit?
• What about the Taxes Ramifications?
• What about the Deficiency or otherwise the Personal Liability?

These three questions cause most people a significant amount of stress and loss of sleep. With a basic plan it doesn’t need to be this way. I want to briefly focus on the tax question.

The 1099C is a federal reporting requirement for forgiven and unpaid debt placed on the lenders by the IRS. Anything to do with the IRS scares people to death. Step back for a moment. This is only a reporting requirement and not a henchman’s order to come and drag you and your family to the castle dungeon.

If you worry so much about the “Constant”, and you don’t address a solution for the mortgage and the house, then you are going to have a much bigger problem with foreclosure and you will still eventually have to address the tax issue.

Put the solution for the mortgage problem at the forefront and take some time to research mitigation strategies for the potential tax issue. Our program outlines four primary areas that you can take to your tax advisor to mitigate the tax issue without the worry.

The vast majority of homeowners that are considering a solution with their primary residence will be protected from any tax burden on forgiven debt under the Mortgage Forgiveness Debt Relief Act of 2007. It’s almost been a year since this legislation has passed and most people are either unaware of it or unsure and it causes them stress.

In a normal setting, debt forgiveness would result in taxable income. The new legislation allows for the exclusion of tax on up to 2 million in forgiven mortgage debt on your primary residence.

For more on this legislation go to IRS.gov and look up IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. You can always give Uncle Sam at call as well at 800-Tax-Form (800) 829 3676 and ask about form 982.

If it is not your primary residence our program will guide you through what you need to suggest to your tax advisor to address the tax issue. There is no reason to be alarmed. Simply consult a tax advisor or accountant in the calendar year when you complete your short sale.

There is a solution to the tax issue through proper mitigation, accounting, and filings that will protect you. All the laws and avenues of mitigate regarding this issue already exist so please stop worrying yourself to death.

Nobody wants to deal with the Tax Man because his reputation precedes him. That is certainly understandable. However, given the magnitude of the housing crisis, this is not one of those times to be afraid. Focus on the solution and you will be ok.

GHunter