Frequently Asked Questions

Q: My paycheck just got cut 2% what is going on?

A: You might wish to talk with your employer

Q: What are the tax implications of personal residence short sales?

A:A sale where the mortgage debt exceeds the net sale price (after subtracting all commissions and other associated selling costs) is called a short sale. If the lender decides to forgive some or all of the unpaid debt, the forgiven amount constitutes debt discharge income (DDI) for federal income tax purposes.
The general rule says that DDI income is a taxable item. For the year the debt discharge occurs, the lender is supposed to report the income amount to the borrower and to the IRS on Form 1099-C (Cancellation of Debt). The borrower generally must include the amount as income on that year's Form 1040. However, IRC Section 108 provides several exceptions to the general rule that DDI is taxable.
Principal Residence Mortgage Debt Exception - This one is the most likely candidate to help a homeowner for DDI that occurs in 2007 through 2012. You can find more about it in the 108(h) of the Internal Revenue Code.  If you have any short sales and need help trying to figure out the tax issues, we can help you with this. To get help, email us.

Q: What is the Federal Income Tax impact of foreclosure on a borrower?

A: A foreclosure occurs when a mortgage borrower defaults and the mortgage lender seizes the mortgaged property in order to sell it, before things get worse.  Depending on the type of mortgage the borrower has will direct the mortgage lender's next actions.

With a recourse mortgage, the lender can pursue the borrower for any deficiency between the foreclosure sale proceeds and the loan balance plus foreclosure costs.

In contrast, when a mortgage is a nonrecourse loan, the lender's only remedy is to seize the property and sell it. If there is a deficiency, it is the lender's problem, because the lender cannot go after the borrower to collect the deficiency. The tax code is under new changes. If you have a short sale tax issue and you would like our help, please email us and we will help you get everything straightened out.

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I'm David. Email me at service@ChristianCPA.com