Review with Your Tax Advisor
REVIEW WITH YOUR TAX ADVISOR – SAMPLE
Whether you choose a loan modification, short refinance, short sale or foreclosure, you may face income tax consequences based on the unpaid mortgage debt.
The IRS requires mortgage lenders to issue Form 1099 for “forgiven” or unpaid mortgage debt which is treated as taxable income unless you qualify for certain exclusions. You are strongly urged to consult your tax advisor to determine your potential tax liability. To the extent that you fail to obtain tax advice, you are acting against the Agent’s advice and recommendation.
Example:
| Original Purchase Price: | $705,000 |
| Documentable Cost of Improvements: | $12,450 |
| Current market value: | $550,000 |
| Less selling costs: | $36,450 |
| Less property taxes due at closing: | $0 |
| Less HOA due at closing: | $0 |
| Less additional lien due at closing: | $1,000 |
| Net sales price to lender(s): | $512,550 |
Example: Current mortgage(s):
| 1st mortgage: | $575,348 | Acquisition mortgage? | Yes |
| 2nd mortgage / line of credit: | $53,405 | Acquisition mortgage? | No |
| Other secured debt | $0 | Acquisition debt? | No |
| Total mortgage balances: | $628,753 | ||
| Unpaid mortgage debt at sale of home: | $116,203 (may be treated as taxable income) | ||
Summary of all Acquisition mortgages:
| 1st acquisition mortgage: | $620,000 |
| 2nd acquisition mortgage / line of credit: | $0 |
| All additional secured debt | $0 |
Summary of all Refinanced mortgages and other secured debt: Amount
1st refinanced mortgage: $____________
2nd refinanced mortgage: $____________
All additional refinanced mortgages : $____________
Any other debts secured by the property: $____________
Discuss with your Tax Advisor:
- Do you qualify for the Mortgage Forgiveness Debt Relief Act?
- Can you claim to be Insolvent? Will that lower your potential tax liability?
- What is your potential State and Federal Income Tax Liability?
- What will the effect of a transaction be on your State and Federal Income Tax Liability?
- Any other questions, debts or issues that relate to your personal situation.
