TAXTIME PAYBACK/RELIEF FROM THE GOOD OF REAL ESTATE
By: Angel Y. Dayan, EA, ABA, ATA, CPA- (213)-365-1040 taxwork.com

It was over like “every beginning has an end.” But it is not over until it was really over as some people now may sadly realize. The year had closed with problems in real estate that people still have to face in 2008. I refer to those who lost their home/real estate in a foreclosure, repossession, abandonment, voluntary conveyance, deed in lieu of foreclosure or finally the most practical at times, the realtor/broker “commission-driven” short sale. Homeowners may now be taxable from their capital gain and income from forgiven or cancelled mortgage. This mortgage deficiency has been my client’s heavy cross as he faces the year 2008. The lender was still asking him to pay for the mortgage balance that did not get paid out of the short-sale of his home. I am sure this experience is true to many homeowners whom I was told were simply “suppressing this problem” like “que sera, sera-bahala na” until the tax time wakes them up to April 15 sad realities. Why be penalized twice after an unpleasant foreclosure/short sale? “It does not make any sense”, from the words of lament, offered by the unfortunate victims as a solution. And yes, they are right, there should be some laws that protect homeowners from the sad experience of property ownership. The tax laws yet offer solutions but it is quite complex and most people should seek expert advice. Do not assume that simply because you have become a victim of some unfortunate events in real estate that our government would leave you alone. That is not true. In fact, if you had actually benefited from the equity of you home, the likelihood of your being taxed is now. And if you have lost everything and/or spent all the (tax) money during the good days of real estate, you might still be able to avoid your imminent tax. But for your most important caution, take note that “if your mortgaged property is foreclosed or repossessed and the bank or other lender reacquires it, or if the lender knows that you have abandoned the property, you should receive from the lender a Form-1099A, which indicates the foreclosure bid price, the amount of your debt, and whether you were personally liable. The IRS may compare its copy of Form-1099A with your return to check whether you have reported income from the foreclosure or abandonment. If the lender also cancels your debt, you may instead receive Form-1099C, on which the information about the foreclosure or repossession will be included.”

Some two and half million (2.5 million) homes will be foreclosed in the next two (2) years. This will be the result of the “sub-prime lending” frenzy in the past few years that qualified marginal borrowers for 100% financing (no money down) with the use of adjustable-rate mortgages that are now resetting substantially higher mortgage payments. People have also done (endless) refinancing that have cashed out on the equity under this subprime loan frenzy from loan money that came from some of the finest banks in Europe, who now refuse to conduct trade on these failed mortgage notes that has weakened the U.S. dollar.

There are sure tax reliefs and remedies in the law that may allow you to solve these problems. Do not go to a lawyer to seek help on bankruptcy filing unless it is your only and last resort. Use the remedies of the tax law first before agreeing to a lawyer who may not know these tax reliefs or even if he does, he may not advice you to this sensible direction.