1 : What TAX FORM should I use to
record Short Sales or Foreclosure of Residential Property in order
reflect/attach them on my FORM 1040.
2 : In addition, how do you get
the Fair Market Value of such property. Which website or agency should we
inquire?
Thank you so much for your help
Answer :
1 : Generally, canceled or forgiven debt or a loan
modification (change to the terms of a loan) will result in 1099-C taxable
income. However, there are very specific exclusions. Generally, if an exclusion
applies to the situation, the tax filer will not owe income taxes on the
canceled debt. The most common exclusion is for a home that was a primary
residence. If the loan was to buy, build or substantially improve a principal
residence, and the canceled debt was less than $2 million for married filers,
they will qualify for the exclusion and will not be taxed on the forgiven debt.
However, those who experienced a short sale, loan modification or foreclosure
on a second home or investment property don't exempt under this provision and
will be taxed on the cancelation of debt provisions, unless another exclusion
applies.Perhaps you were deemed insolvent. If the liabilities you owed were
larger than your assets immediately before the cancelation of debt occurred,
you do not need to include the 1099-C income in your reportable. SO UNLESS an
exception applies, if you transfer title of your home, whether voluntarily
through a warranty deed or grant deed, or involuntarily through foreclosure,
you have sold your home. You might be subject to taxes, even if you sold your
home at a loss, either on a short sale or by foreclosure. The mortgage company
is actually the owner of the house. For a short sale to be approved,you, the
seller , must submit a completed sale package that includes sellers' hardship
letter, tax returns, payroll stubs, financial statements and bank statements to
the lender. Since the mortgage company is losing money on the sale they will be
reluctant to pay any closing costs or Realtor fees. The benefit of not having
to go through the foreclosure process is what drives a lender to accept a short
sale. The down side is that the mortgage company could send you a 1099-C for
the uncollected balance. If you settle a debt with a creditor for less than the
full amount owed, he may be required to report this forgiven debt as regular
income on line 21 1040. As long as the amount is over $600 of the principal,
the IRS will require that you report the amount on the form as income.
2 : I guess you need some
professional help from a r/e appraiser/ a r/e agent . Most residential short
sales involve some kind of federally insured financial institution. Hence,
federal government definitions of “fair market value” can be applicable.The
classic federal definition of fair market value is ;The fair market value is the
price at which the property would change hands between a willing buyer and a
willing seller, neither being under any compulsion to buy or to sell and both
having reasonable knowledge of relevant facts. As said, a short sale is when
you ask your bank to help you out by accepting a payoff that is less than what
the bank is owed. This gets you out of the home and avoids costly foreclosure
proceedings for the bank. A few different strategies being used by short sale
sellers:1)Price the house at or above market value – These sellers may be
trying to milk the process to live in the home as long as possible. Continuing
effort to list the property may delay foreclosure proceedings, but only for so
long. 2) Price the home based on the best estimate of the price that the bank
will approve – Banks have a process for determining what sale price they will
or will not approve on a short sale. The most experienced short sale agents
will understand this process and price the property realistically within a
range that is likely to be accepted. 3) Price the home very low to get a quick
offer – The hardest part of the short sale process is getting an offer in hand
so that the bank can start the review process. In their haste to get an offer
to the bank, sellers often set prices far lower than will be realistically
approved by the bank to get an offer in hand. If a home is worth $300k and the
seller lists for $200k, you can be certain that they will get a quick offer,
but you can also be certain that the price will not be approved by the bank.
However, Every once in awhile, a home will have a list price that has been
pre-approved by the bank. That is a great situation, because they have done a
preliminary review and said what they are willing to accept. An offer at the
approved price should be accepted quickly, though a bit of negotiation may
still be possible.
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