Foreclosure Forecast Newsletter

If you’ve recently gone through a foreclosure, deed-in-lieu of foreclosure, short sale or loan modification, you’re probably feeling pretty beat up and drained. If it’s not you that has gone through the process, I bet you know someone else who has. It’s an arduous process that the banks seem to prolong as much as possible.

I wish I could tell you that you’re through with the problems from the upside down real estate you just cleared up.

There’s one more issue: taxes. This should be a clear-cut area. But there is one problem.
The lenders are notorious for not following the rules.

If you have property that was let go in foreclosure, you’re supposed to get a Form 1099-
A. You’re lucky if they even prepare a Form 1099-A (for some reason, a lot of the lenders our readers have dealt with don’t seem to even understand the basic rules for a foreclosure). And then, there’s a good chance that they will mail it to the address of the property that isn’t yours anymore

If you had a property foreclosed on or did a deed-in-lieu-of foreclosure, you should get a Form 1099-A by January 31st of the year following. If you don’t get one, call them. You may find that they refuse to talk to you unless you bring the note current. Or you might find that they think they don’t owe you a Form 1099-A.

In both cases, they’re wrong, but what are you supposed to do?

PROBLEM: No Form 1099-A, and there should have been one.
Talk to an EXPERIENCED tax professional first to verify you really should have received a Form 1099-A.

If you should have, and didn’t, contact the lender. Hopefully they can get you a copy out right away. If they won’t give you a Form 1099-A and they should have, really isn’t anything to report unless there is Cancellation of Debt. BUT make a note of it in an attached statement to your tax return. If there’s reporting you should have done and didn’t or couldn’t because they didn’t do what they were supposed to do, make sure the IRS and your state are on notice that it’s not your fault.

PROBLEM: Form 1099-A issued with wrong information or in error.
If you get a Form 1099-A that’s got bad information, contact the lender. If they won’t issue you a new one, the IRS says you’re supposed to call them.

PROBLEM: Form 1099-A issued, but no Form 1099-C.
If you think you should have gotten a Form 1099-C (because you had Cancellation of Debt) and didn’t, contact the lender. If they won’t give you one or you get the run-around, then one of three things has happened:
(1) You didn’t really have Cancellation of Debt (COD).
(2) The lender knows you have a Form 982 exclusion.
(3) The lender doesn’t know what they’re talking about.

Of all of those, I think #3 is the one I hear about the most.

If you and your experienced tax/legal advisor believe that you did indeed have COD, then report the income as other income or on Form 982 using your estimate of Fair Market Value or the amount reported on Form 1099-A.

The worst thing you can do is ignore the tax issues if you’ve gone through a foreclosure or other form of debt forgiveness. A little planning can go a long way.

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. Learn from our blogs, ask questions on the form and get free updates at www.USTaxAid.com

Sign up today for this EXCLUSIVE ONE-TIME EVENT for All Investors. Learn How to Build Your Foreclosure Cash Cow Rental Empire Now during our Professional Investor Webinar with Daryl White and Alexis McGee. Wednesday, Sept. 1, 2010, 6pm (Pacific)
http://www.foreclosures.com/webinars/professional/