[WSBARP] Short sale versus foreclosure tax issue
Eric Nelsen
Eric at sayrelawoffices.com
Fri Apr 11 17:05:42 PDT 2014
Lynn--if the bank bids the amount owed, then there's no debt left, right?
How does non-recourse versus recourse even enter into it, when there's no
debt?
Or, are the banks ignoring their bid, and issuing 1099s based on their
estimate of the difference between market value of the property and the
amount of the debt?
Thanks for the referral--I may contact Ken.
Sincerely,
Eric
Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA 98101-2837
phone 206-625-0092
fax 206-625-9040
From: wsbarp-owner at lists.wsbarppt.com
[mailto:wsbarp-owner at lists.wsbarppt.com] On Behalf Of Lynn Arends
Sent: Friday, April 11, 2014 4:58 PM
To: <wsbarp at lists.wsbarppt.com>
Subject: Re: [WSBARP] Short sale versus foreclosure tax issue
Even when the property reverts to the lender and the bank bids the amount
owed, that does not change the argument that Craig Blackmon referenced
earlier regarding whether this is now non-recourse debt or recourse debt
now uncollectible.
I counsel on both shorts sales and foreclosures and I can tell you that
some of my clients have received 1099s after a Trustee Sale.
I often refer my clients to Ken Weil in Seattle who is an excellent tax
and bankruptcy attorney, and well versed in this area.
Lynn Arends
Attorney & Designated Broker
Lynn Arends Realty & Lynn Arends Law Group
www.lynnarends.com
Sent from my iPad
On Apr 11, 2014, at 4:21 PM, "Eric Nelsen" <Eric at sayrelawoffices.com>
wrote:
Bryce--Interesting! So in your experience, with residential nonjudicials,
the banks usually don't fiddle around with bidding part of the debt?
And, for tax purposes, bidding the amount owed means that there's never
any debt forgiven, because the bank is effectively "willing" to buy the
property for the price of the full debt, regardless of the actual market
value. An interesting philosophical point on the definition of market
value.
I wonder what the IRS result would be if in a nonjudicial foreclosure, a
bank bid part of the debt, received the property, (of course) did not
receive a deficiency judgment because it's prohibited, but nevertheless
issued a 1099 for the difference between the bid and the total debt.
Sincerely,
Eric
Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA 98101-2837
phone 206-625-0092
fax 206-625-9040
From: wsbarp-owner at lists.wsbarppt.com
[mailto:wsbarp-owner at lists.wsbarppt.com] On Behalf Of Bryce Dille
Sent: Friday, April 11, 2014 2:37 PM
To: wsbarp at lists.wsbarppt.com
Subject: Re: [WSBARP] Short sale versus foreclosure tax issue
In most cases in Residential setting bank bids the amount owed so it is a
non issue
Sent from my BlackBerry 10 smartphone on the Verizon Wireless 4G LTE
network.
From: Craig Blackmon
Sent: Friday, April 11, 2014 2:25 PM
To: wsbarp at lists.wsbarppt.com
Reply To: wsbarp at lists.wsbarppt.com
Subject: RE: [WSBARP] Short sale versus foreclosure tax issue
I believe so, but the fact of the matter is my counsel includes a very
large punt of all tax issues into the lap of a tax pro, so I’ve generally
faded from the picture by the time any 1099 arrives. I suspect others on
this list have a much better idea of the answer.
Craig
Craig Blackmon
Of Counsel Attorney at Law
<http://lawhg.net/> Holmquist & Gardiner, PLLC
1000 2nd Avenue, Suite 1770 Seattle, WA 98104
Main: (206) 438-9083 Direct: <tel:%28206%29%20694-4601> (206) 438-9295
Cell: (206) 369-5949 Fax: <tel:%28206%29%20694-4601> (206) 694-4601
Founder and Principal of <http://quillrealty.com/> Quill Realty
Smarter Service. Stronger Protection. More Savings.
<https://www.facebook.com/quillrealty> Facebook //
<https://twitter.com/QuillRealty> Twitter
This transmission is confidential and intended only for the recipient(s)
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From: <mailto:wsbarp-owner at lists.wsbarppt.com>
wsbarp-owner at lists.wsbarppt.com [mailto:wsbarp-owner at lists.wsbarppt.com]
On Behalf Of Eric Nelsen
Sent: Friday, April 11, 2014 2:20 PM
To: wsbarp at lists.wsbarppt.com
Subject: RE: [WSBARP] Short sale versus foreclosure tax issue
I should have known the simple question wasn't really simple. Thanks very
much, Craig.
In your experience, are banks issuing 1099s after nonjudicial foreclosures
(as opposed to after a short sale, which I believe they are doing
routinely)?
Sincerely,
Eric
Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA 98101-2837
phone 206-625-0092
fax 206-625-9040
From: wsbarp-owner at lists.wsbarppt.com
[mailto:wsbarp-owner at lists.wsbarppt.com] On Behalf Of Craig Blackmon
Sent: Friday, April 11, 2014 2:14 PM
To: wsbarp at lists.wsbarppt.com
Subject: RE: [WSBARP] Short sale versus foreclosure tax issue
The answers are:
Yes, depending on whether the insolvency exemption applies (I believe the
principal residence exemption was not extended, but I could be wrong
there, and if I am wrong then that may apply as well); and yes
Depends on the tax professional with whom you are consulting. It is a
complicated issue. Some professionals (CPAs, tax attorneys) believe there
is no COD (cancellation of debt) income because a non-judicial foreclosure
results – essentially – in non-recourse debt (likely more of the former
and fewer of the latter hold this belief). Other professionals disagree
and believe in WA a non-judicial foreclosure still results in COD income,
again subject to those potential exemptions.
Craig
Craig Blackmon
Of Counsel Attorney at Law
<http://lawhg.net/> Holmquist & Gardiner, PLLC
1000 2nd Avenue, Suite 1770 Seattle, WA 98104
Main: (206) 438-9083 Direct: <tel:%28206%29%20694-4601> (206) 438-9295
Cell: (206) 369-5949 Fax: <tel:%28206%29%20694-4601> (206) 694-4601
Founder and Principal of <http://quillrealty.com/> Quill Realty
Smarter Service. Stronger Protection. More Savings.
<https://www.facebook.com/quillrealty> Facebook //
<https://twitter.com/QuillRealty> Twitter
This transmission is confidential and intended only for the recipient(s)
noted above. It also may contain materials protected by the
attorney-client privilege or work product doctrine. If it has been sent
to you in error, please delete it and notify the sender immediately.
From: <mailto:wsbarp-owner at lists.wsbarppt.com>
wsbarp-owner at lists.wsbarppt.com [mailto:wsbarp-owner at lists.wsbarppt.com]
On Behalf Of Eric Nelsen
Sent: Friday, April 11, 2014 2:03 PM
To: WSBA Real Property listserve (wsbarp at lists.wsbarppt.com)
Subject: [WSBARP] Short sale versus foreclosure tax issue
Basic questions--If client sells her residence at a short sale and the
bank takes, say, a $40,000 haircut, is that considered forgiveness-of-debt
income to the client that she has to pay taxes on? And does the bank issue
a 1099?
And, in comparison to an actual foreclosure--there's never a
forgiveness-of-debt-income issue on a residential nonjudicial foreclosure,
is there? Despite the lack of a deficiency judgment?
Sincerely,
Eric C. Nelsen
SAYRE LAW OFFICES, PLLC
1320 University St
Seattle WA 98101-2837
phone 206-625-0092
fax 206-625-9040
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