Today TaxMama hears from Toki in the TaxQuips Forum, with a problem, “I bought my house in 2005 and it is now upside down. I decided to try and have my loan redone and got shafted out of $4,000, having a third party to do it for me. I stopped making my payments and I am now doing a short sale, which should close on or before November 15th . Will the IRS come after me for the difference of the loan amounts in a tax sense?”
It’s such an awful, helpless feeling going through all that. I am so sorry that you paid someone $4,000 to help you – who didn’t. Perhaps you have a case against those people who probably never could have helped you at all – just took your money. It’s folks like that who are the target of the Federal Trade Commission’s new guidelines on telemarketing and debt reduction. I would certainly at least go to Small Claims Court to get that money back. You must do that within two years after you signed that contract – or after they failed to help you.
But, to the tax issues. If the loan on your home is the original loan, you won’t have a tax problem. There are special tax relief rules when it’s your principal residence and the loan is ‘acquisition debt’ or “qualified principal residence indebtedness”. You will find some guidelines here, on the IRS site.
However, if you refinanced the house since you’ve owned it, and taken money out, you may find yourself facing some tax issues. It gets complicated. I explain some of the ways around the taxes in this MarketWatch.com article.
Since the deadline is coming soon, you may want to sit down with a good tax pro to help you evaluate your entire situation. They will need information about your purchase, improvements to the house, and any refinances.
This is a tough time for you. But life will get better.
And remember, you can find answers to all kinds of questions about short sales and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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