EDIT: The short sale house is in Maryland.
Long story short, we purchases a house in 2006 and converted it to a rental in May of 2013 (because we couldn't afford to sell - underwater). Our interest only mortgage turned to P & I in May of 2016. We have 2 mortgages, from the start. We listed the property as a short sale and it is currently under contract. We thought we were covered under the Mortgage Debt Relief Act.
Now the long story...
Under the spirit of the Act, it should cover those that are under a hardship and not investors, etc. It's my opinion, probably, but we're trying.
We did not live in the property in 2 of the last 5 years. We lived there 1 year and 7 months of the last 5 years. It was rented for 3 years and the property has now been vacant for 5 months.
I purchased the property as my primary residence and only converted it as a rental because we felt we had to. Is there any out at all?
The other issues are that we refinance back in 2007 and took money out to pay off two auto loans.
I read some things on the IRS on reduced maximum exclusion. How can I tell if I qualify for that? The verbiage on that went a little over my head when it talked about unforeseeable circumstances and such. I think the only part that I'm excluded from is the part that talks about the issue arising at the time of the sale. Sadly, the problem is that I didn't know our interest only loan was going to become a P & I after 10 years. So the unforeseeable circumstances should have been seen if my younger self was diligent.
What's the next step? If I continue with the short sale, we look to also have about 31k in capital gains taxes. I'm upside down on the mortgages by 76k. The 1st lender offered the 2nd lender 6k. That means the forgiven debt on the 1st mortgage will be 2k and the forgiven debt on the 2nd mortgage will be 74k.
I looked into insolvency. I don't believe I am, but let me also as this... on the IRS worksheet for insolvency, it has me list retirement "interest". What does that mean? Do I only have to list the interest gained in my retirement fund and count that against my total debt? If so, how do I figure that out? The majority of my retirement fund is employee owned stocks and the company sold. Of course the cash value before the sale was invested. If I look at my retirement balance, I'm not insolvent. If that was out of the equation, I definitely am. Thoughts?
If I proceed with the short sale, I don't think I qualify for an offer in compromise. I believe my only option would be an installment plan but I'd be looking at about way too much a month.
If I end the contract, do we know if the purchaser, realtor or anyone can sue me? I went in thinking I'd owe the IRS a few bucks, not 50k.
Thank you for the help. It seems like I keep finding possible options that I barely don't qualify for or a IRS law that I have no idea about. I've talked to a CPA that recommended a Tax Attorney. I spoke with a Tax Attorney and they recommended keeping the property as a rental (even though I'm taking a loss each month now. However, I need to find out for sure how much I will be obligated to pay the IRS. Also, the Attorney mentioned that it'd be my responsibility to report cancellation of debt as income regardless of the banks sending 1099-c or not. I'm officially waiting on the approval letter from the bank so I have no idea if they'll send a 1099 (in case someone asks).
-D
Long story short, we purchases a house in 2006 and converted it to a rental in May of 2013 (because we couldn't afford to sell - underwater). Our interest only mortgage turned to P & I in May of 2016. We have 2 mortgages, from the start. We listed the property as a short sale and it is currently under contract. We thought we were covered under the Mortgage Debt Relief Act.
Now the long story...
Under the spirit of the Act, it should cover those that are under a hardship and not investors, etc. It's my opinion, probably, but we're trying.
We did not live in the property in 2 of the last 5 years. We lived there 1 year and 7 months of the last 5 years. It was rented for 3 years and the property has now been vacant for 5 months.
I purchased the property as my primary residence and only converted it as a rental because we felt we had to. Is there any out at all?
The other issues are that we refinance back in 2007 and took money out to pay off two auto loans.
I read some things on the IRS on reduced maximum exclusion. How can I tell if I qualify for that? The verbiage on that went a little over my head when it talked about unforeseeable circumstances and such. I think the only part that I'm excluded from is the part that talks about the issue arising at the time of the sale. Sadly, the problem is that I didn't know our interest only loan was going to become a P & I after 10 years. So the unforeseeable circumstances should have been seen if my younger self was diligent.
What's the next step? If I continue with the short sale, we look to also have about 31k in capital gains taxes. I'm upside down on the mortgages by 76k. The 1st lender offered the 2nd lender 6k. That means the forgiven debt on the 1st mortgage will be 2k and the forgiven debt on the 2nd mortgage will be 74k.
I looked into insolvency. I don't believe I am, but let me also as this... on the IRS worksheet for insolvency, it has me list retirement "interest". What does that mean? Do I only have to list the interest gained in my retirement fund and count that against my total debt? If so, how do I figure that out? The majority of my retirement fund is employee owned stocks and the company sold. Of course the cash value before the sale was invested. If I look at my retirement balance, I'm not insolvent. If that was out of the equation, I definitely am. Thoughts?
If I proceed with the short sale, I don't think I qualify for an offer in compromise. I believe my only option would be an installment plan but I'd be looking at about way too much a month.
If I end the contract, do we know if the purchaser, realtor or anyone can sue me? I went in thinking I'd owe the IRS a few bucks, not 50k.
Thank you for the help. It seems like I keep finding possible options that I barely don't qualify for or a IRS law that I have no idea about. I've talked to a CPA that recommended a Tax Attorney. I spoke with a Tax Attorney and they recommended keeping the property as a rental (even though I'm taking a loss each month now. However, I need to find out for sure how much I will be obligated to pay the IRS. Also, the Attorney mentioned that it'd be my responsibility to report cancellation of debt as income regardless of the banks sending 1099-c or not. I'm officially waiting on the approval letter from the bank so I have no idea if they'll send a 1099 (in case someone asks).
-D
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