1099s served for Short Sale on Invest Property
I am going to get hit with a 1099 for 105K. Bought it for 215 in September of 2005. There were 2 loans. 1 with the primary lien holder at 172K and the other for 32K.
Short Sold it for 79.9K. 68 and change after closing, etc. The Primary Lien holder is forgiving the remaining debt and writing off the balance. I can expect to be hit with a 1099 in the next 30-60 days. The 2nd bank is not going to forgive the debt. I am fighting with them now. In the end I hope to settle with them for a substantially lower #. Hoping for 3K. I am in the red every month so they can take me to court if they would like. That is another fight and not the focus of this post.
I want to talk about this 1099. This is an investment property. I know before Bush left office he passed a law to forgive taxes owed on Primary Resident Short Sales. My property was not a Primary Residence; I collected rent. I was told that the only way around this is via tax form 982. Its a form to claim insolvency. Basically showing the IRS that I am in the red every month, thus i cannot pay the taxes on this 1099. Whether or not this will work, i do not know. They may reduce it, the may forgive it, they may work out some kind of payment plan. They may say F You and pay us our $.
Now I have a friend who bought 7 of the same kind of condos as I had. BTW it was a condo in Florida and I am from NY. He and his Accountant are taking a different approach. They are basically saying "This is an investment property and I am claiming a loss....I paid X and sold it for X minus Y. So therefore it is a loss. The Loss will offset the 1099".
Now I find this a little hard to believe. Mainly because, I and my friend did not buy the property with cash. We took a mortgage. When the condo was sold for much less then what was borrowed. The Bank took the loss, not us. The accountant's response to this was "Did you make any money from this sale; is there any money in the bank reflecting this as a gain?" Of course not I said.
I said to the account. "if its this simple, why doesn't everyone take this approach and if they did....no one would ever have to pay a 1099 for a short sale of an investment property who took out a mortgage" He said "I don't know. It is that simple"
I then asked him, well what have the results been. he said I don't know, he just submitted the paperwork to the IRS.
He sounded pretty confident, but hes never done this before. I think hes talking out of his a$$.
I have taken a loss on this property over 4 years. Probably about 50K, factoring what I was upside down every month, even with my rental income. Expenses, my down payment lost, etc. Thats is the true loss, not that I bought it at X and sold it for X-Y with a mortgage. If I paid cash for it, it would be a different story.
I need to really prepare for this guys. Please only those who KNOW FOR SURE how to deal with the 1099 respond. I have heard enough speculation about it for years now.. I need to know the real deal.