As the day to file personal income taxes is fast approaching - a little too fast really - we wanted to make a note of a couple of things. If in the 2009 tax year, you sold your home as a short sale, you should have already spoken to your tax preparer about the possible consequences. Your previous lender has most likely issued you a 1099, which is a form that verifies a tax payer has received some sort of misc. income (the IRS considers forgiven debt "income"). There are many types of these 1099s and your tax pro is the person to contact about what they mean, especially how they affect your personal situation. Because of the The Mortgage Debt Relief Act of 2007, many will not be affected at all. However, it is not safe to assume that! Therefore, if you have not already, you need to call a tax professional. They are probably way to busy now to take your call, but trying never hurts. The result is never good if you don't try, right? Some tax preparers are "walk-in" only, and you may have time to meet with one if you are willing to sit and wait a little while.
Also important is something that my CPA friend told me today. Apparently the IRS will be selecting some tax returns that are accompanied by the 1099 from debt forgiveness and contacting the filer. This means that if you are in this category of tax payers, you need to be prepared to explain the same hardship you explained to the lender.
Involved in a short sale now? Your Realtor has probably told you that you should be contacting your tax pro soon. Understanding how it will change your taxes before hand is really the best approach.
Have a great week all!
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