In some circumstances, however, the debtor may have engaged in transferring or concealing assets in an effort to delay or hinder collection activities by its creditors. Unfortunately, many creditors face the difficult reality that an insolvent debtor with little-to-no assets is essentially “judgment proof,” and the debt is uncollectable. In Florida, there are many judicial procedures available, which allow creditors to identify, seize, lien, levy and force the sale of a debtor’s assets in order to satisfy the indebtedness owed to the creditor. The debt collection process is based upon a creditor’s right to repayment from the liquidation of a debtor’s assets. Real Estate Development, Sales & Leasing.Community Advocacy & Social Responsibility.Ideally, this is something a qualified CPA should help a taxpayer with, which could make any canceled, forgiven, and or discharged reported income a nontaxable event.Search Website Submit SearchSearch Close Search To avoid any tax consequences from receiving a 1099-c, the taxpayer needs to show the IRS they were insolvent on their tax return by completing tax Form 982 with their taxes. This means a borrower's liabilities exceeded their assets. With the circumstances of a short sale, most borrowers are financially insolvent at the time they completed a short sale. ![]() The good news to the former borrower is that with their former lender provides them a 1099-c Tax Form, the borrower has confirmation that the lender will not be pursuing a deficiency judgment against them. According to the IRS, any debt that was owed that has been canceled, forgiven, or discharged is taxable income according to the IRS (to the former borrower). When a lender experiences a financial loss due to facilitating a short sale for their borrower, the lender will normally write off their financial loss as "bad debt" and report this as a tax write-off to the IRS, by sending their former borrower a 1099-c Tax Form. Additionally, if a potential buyer approaches a seller directly to purchase their property with a short sale, this is typically not in the seller's best interest as the sale needs to be processed by a Real Estate Broker on a short sale. As such, since the lender technically pays the real estate commission in a short sale, it is wise for the seller to select an experienced Short Sale Broker to represent their best interest in the process. When a lender agrees to reduce the amount of a mortgage to accommodate a short sale for a borrower, the borrower cannot receive additional proceeds from the sale, above what is agreed to in a possible relocation assistance offer (example: seller receiving a real estate commission as a result of selling their own property). Additionally, even if the seller of a short sale has an active real estate license and wants to receive a commission from the sale of their own property, this is not permitted. With a short sale, it is unnecessary and problematic for a property owner to sell their own property themselves without the expertise of a Short Sale Broker, as a short sale needs to be an arms-length transaction to avoid the risk of being constructed as fraud.
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