Several years ago i had property go back to the lender..my debt was 150K…
the back accepted an offer from an investor for 125K …the following
January i rec’d a form 1099 from the bank showing a “charge off” of 25K ..which is treated as ordinary income…i was’nt expecting this….
Now fast forward to now.. i have a deal working to get a short sale accepted to save this seller from foreclosure and give him a little moving cash… Seller thinks all is well and i’m a great guy till next Jan. when he gets a 1099-c for income he’s never seen..
QUESTION?…do i tell him in writing up front that there could be tax liabilities and risk the chance of losing the deal?
Absolutely without question you tell them they will be receiving a 1099 for the amount that was forgiven. The tax liability would be worse if it wasn’t for you, right? They are either going to 1099 them or file a judgment ANYWAY… Regardless of what you do! You are actually bettering their situation.
This is a common concern for most investors, however there is a solution. There is a form the IRS puts out that counter acts a 1099. You can find it on www.irs.gov. It is form 982. Yes, you should always disclose to the seller the risks involved, but your main concern is a deficiency judgment now.
You need to read the Short Sale Secrets ebook that I have, it would help you tons…