Welcome to the First Edition of Kim’s Korner,
The first client today, was concerned about a 1099 form they received from their mortgage company. It shows a principal forgiveness of $80,000.00 and they wanted to understand the possible tax consequences. She had remembered that I had mentioned information about her 1099 in our previous conversations.
I had told her that in the simplest of terms, the IRS says, “If you borrow money and don’t pay it back, they will count it as earned income”. President Bush, before leaving office, had signed an order that gave homeowners who purchased a home prior to January of 2009, a break. At that time, due to the housing market collapse, if a short sale, foreclosure, or settlement was awarded to an owner occupied home, the homeowner would not be liable for any tax consequences that followed. President Obama extended that relief, as the housing market slump continues.
The IRS has a form, #982, that needs to be completed by your tax preparer to nullify the 1099 income that is shown on that form.
In another scenario, what if you are an investor and have lost one or more properties? If this pertains to you, you should seek the help of a CPA, or state licensed Certified Public Accountant. In most cases they are going to show you and your investment business as insolvent, and therefore, no tax liability will be shown. In order to prove your insolvency, you need to make sure that your records are in order.
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