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Tag Archive for Debtor

The Ins And Outs of Foreclosure (Part 6)

Documentation –

As with all things dealing with income taxes documentation is a must. Since you are dealing with personal, business, and investment use property it is imperative that you have good documentation for all figures you use in your calculations. The exclusion of CODI and the lack of claiming a taxable gain on the proper forms is one of the “high risk” audit items at the IRS.

When dealing with your business and investment items you need the same type of documentation that you would use to determine basis for disposition. If the item has been in service and has been depreciated, a copy of the current depreciation worksheets are a great Read more

The Ins And Outs of Foreclosure (Part 5)

More about John and Reporting Foreclosures –

There is also a good possibility of John having income related to the Cancellation of Debt (CODI). This is a separate transaction and calculation from the gain or loss on the deemed sale of the property. See the worksheet below for a quick example of how the two transactions are separate, yet, related to each other. John purchased the car for $25,000. The FMV when seized was $10,000 and the outstanding loan balance was $22,000.

Worksheet for Foreclosures and Repossessions

Part 1. Figure income from cancellation of debt. (Note: If not personally liable for the debt, there is no income from cancellation of debt. Skip Part 1 and go to Part 2. Read more

The Ins And Outs of Foreclosure (Part 4)

Tax Consequences of Foreclosures –

When a foreclosure or repossession is made there are tax consequences in addition to the legal and monetary issues. When a piece of collateral is seized in place of a debt, it is deemed a sale of the property and must be reported like any other sale.

For recourse loans, the amount of the realized gain is:

the lesser of the debt immediately before the seizure reduced by any amount of the loan the debtor remains liable for after the seizure

Or Read more

The Ins And Outs of Foreclosure (Part 3)

Redemption –

At any point after the notice of default (Step 2 from yesterdays blog) has been filed with the court the debtor may exercise their right of redemption. This enables the original buyer or related parties to stop the foreclosure proceeding by purchasing the property in full. The specific time frames and fees that can be included in the required right of redemption payment vary from state to state.

There are two type of redemption, equity of redemption and statutory redemption. Equity of redemption is available in all states from the time of the filing of the default until the property is sold at the foreclosure sale. Once the property is sold the equity of redemption right is Read more