Diane Kennedy
If you have a property that has more debt then it is currently worth and the lender forgives the debt, you’ve got what is called Cancellation of Debt income. Here’s how it works.
If there is a foreclosure, the lender will first issue a Form 1099-A and then, once the debt is canceled, issue a Form 1099-C.
The Form 1099-C means there is Cancellation of Debt income. This COD income may or may not be taxable. If it was your principal residence, then you’ll probably get a pass on paying tax. But, don’t count on your state to follow the fed’s lead on this. You still might owe state income tax on the COD income for your principal residence.
But if the property was a real estate investment property, you don’t get a reprieve. You owe taxes on the COD income. There is a possible strategy here, though, if you lost money on the property. In other words, the debt is close to what you paid or even less than you did. In that case, you’ll have a loss on the transaction that can offset the COD income. But, you’re stuck if you did cash-out refi’s that increased the loan, but not the basis.
If you’re insolvent or declare bankruptcy, the IRS doesn’t make you pay the tax, but again, not all states have followed suit on this.
If you do a loan modification, you’ll get a Form 1099-C if there is a principal reduction. The deed-in-lieu of will get you a Form 1099-A and possibly a Form 1099-C. And a short sale will get you a Form 1099-C if the debt is forgiven.
(Here’s your opportunity to learn the ropes of foreclosure investing including important tax issues. All the investment tools you need are available at ForeclosureS.com’s 3-Day Hands on Coaching with a Foreclosure Veteran Investor. Want to become a top-producing foreclosure investor without using any of your own cash or credit? Here’s your chance. 
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Now, there is a brand new problem. It’s called Zombie Credit Collectors.
When I first heard this term last week, I thought of “Night of the Living Dead” and couldn’t figure out what on earth it referred to. But no, the collection agency workers aren’t zombies. It’s the debt that’s dead.
Apparently, some of the big banks have started selling off their bad debt. But their records aren’t really good. They are selling anything that has late payments and isn’t currently paying, without checking whether the debt was later paid off or cancelled.
And the credit collection agencies are vigorously pursuing action on the debt that really isn’t debt anymore.
The agencies are going on records they believe are accurate. The banks aren’t returning phone calls. And the former owners are now stuck with debt that has been canceled (and that they have likely paid tax on) now suddenly being due again.
If this happens to you, create a paper trail. Document all conversations clearly. In the end you will win this, but with bad bank records and just general craziness in the lending world, it might take a bit to get through it.
Stay informed! At US TaxAid, we’re always looking to bring you the most current tax information out there, and to break it down into language everyone can understand. If you know anyone else who might benefit from the information resources you’ll find here, tell them to come and check us out. Remember, membership on our www.USTaxAid.com website is FREE.
Wednesday, October 6, 2010 6:00pm Pacific
Attend this FREE Live Webinar given by ForeclosureS.com President Alexis McGee. She focuses on getting you started in the lucrative world of foreclosure investing, without using any of your own cash or credit.
From Real Estate Agent to Real Estate Entrepreneur
How to Implement Your Passive Income Machine
Wednesday, October 13, 2010 6:00pm Pacific
Attend this One-Time, Live Professional Investors Webinar given by Tim Rhode – Foreclosure Investor, Real Estate Broker and Coach. Learn proven strategies on how Realtors (and anyone) can transition from where they are today into a full time real estate investor. Tim will share is indepth experience as both an investor and broker and help you implement your successful investing plan today. Alexis McGee will moderate and share her tips throughout this Interactive Call.
Wednesday, October 20, 2010 6:00pm Pacific
Attendees of this Live, Interactive, Mastering Clients Private Study Session Webinar with Alexis will learn her Most Current Tips and Strategies to Mastering Foreclosure Investing. She will include her successful client Guest Investor Panelists and Coach Proteges. This months webinar will show you Step 7 “How to Put Profits in Your Bank” by finding the right buyer (or tenant) and closing quickly so you can move onto your next deal. Don’t miss out.
For more information about our Live Webinars, please call 800-310-7730 x2
Wednesday, October 6, 2010 6:00pm Pacific
Attend this FREE Live Webinar given by ForeclosureS.com President Alexis McGee. She focuses on getting you started in the lucrative world of foreclosure investing, without using any of your own cash or credit.
From Real Estate Agent to Real Estate Entrepreneur
How to Implement Your Passive Income Machine
Wednesday, October 13, 2010 6:00pm Pacific
Attend this One-Time, Live Professional Investors Webinar given by Tim Rhode – Foreclosure Investor, Real Estate Broker and Coach. Learn proven strategies on how Realtors (and anyone) can transition from where they are today into a full time real estate investor. Tim will share is indepth experience as both an investor and broker and help you implement your successful investing plan today. Alexis McGee will moderate and share her tips throughout this Interactive Call.
Wednesday, October 20, 2010 6:00pm Pacific
Attendees of this Live, Interactive, Mastering Clients Private Study Session Webinar with Alexis will learn her Most Current Tips and Strategies to Mastering Foreclosure Investing. She will include her successful client Guest Investor Panelists and Coach Proteges. This months webinar will show you Step 7 “How to Put Profits in Your Bank” by finding the right buyer (or tenant) and closing quickly so you can move onto your next deal. Don’t miss out.
For more information about our Live Webinars, please call 800-310-7730 x2
