Small business owners are always on the lookout for deductions. I was combing through my files from last year, and came across something I thought you should keep in mind during 2012.
Most of us real estate investors have found ourselves working with short sales, or foreclosures over the last few years. You and your clients should be aware of a BIG advantage written into the IRS code.
“The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence.”
Until a few years ago, many investors had never seen a form 1099-C. Lenders are required to report any cancelled debts to the IRS using this form, 1099-C, Cancellation of Debt.
Here is a simplified example –
- Homeowner pays 100k for a new home.
- Recession hits, and homeowner sells their home for 80k through a short sale.
- The following January, the lender sends homeowner 1099-C for 20k.
Before 2007, the homeowner would be required to pay income taxes on $20,000.
Today, if the situation qualifies, (your accountant can help you understand the full guidelines), you can exclude the full amount from your income.
This provision applies to debt forgiven in calendar years 2007 through 2012.
The Mortgage Debt Relief Act expires this year.
If you want to read about more details, you will find full details at the IRS link here.
PDA and smartphone users will find the details at http://www.irs.gov/individuals/article/0,,id=179414,00.html
There is motivation to get these short sales completed this year. I realize it is only February, but it’s not too early to be paying attention to these items.
Short sales and the issue of foreclosure can still be a tricky area for real estate entrepreneurs. We will be spending an entire evening discussing these topics at our Feb. 27th WREIA meeting.
Washington REIA Network, President
Profitable Property, Founder
Register early for the Feb. 27th WREIA meeting online, and skip the registration line!
You will also find the registration link at http://feb2012-wreia-wreiacom.eventbrite.com