Archive for the ‘Hilton Head foreclosures’ Category

The term ‘short sale’ is when the selling price of a property is less than the mortgage balance owed by the seller.  The loss may be paid by the seller but when this not possible, the sale can only occur when the bank agrees to take the loss.  This can create a tax liability for the seller, something  sellers often ask about.  Part of my job as a Real Estate Broker is to make sure that my clients get the best information and advice and to refer them to attorneys and accountants as needed.  Paul Griz is the Managing Partner of Lighthouse Tax and Accounting LLP in Bluffton, South Carolina,  a CPA who has been kind enough to write a brief summary for the Go Gated Blog about the tax implications of selling short or suffering a foreclosure - Richard Kadesch, Broker-in-Charge, Go Gated Realty®.

Individuals and businesses routinely encounter difficult financial situations, especially in this current economic climate.  At any time, but particularly during this recent recession, many people will have problems with paying off their debt obligations.  The creditors, i.e. mortgage lenders, credit card companies, etc. may decide that the borrower is not going to be able to pay off the full amount of the debt.  In that situation, the creditor may forgive or cancel a portion or the entire amount of the debt.  This situation may occur regardless if the loan is personal or for business.
 
When you borrow money, initially there is not recognition of income due to the fact that there is an offsetting liability to repay.  However, when a creditor forgives debt, the forgiveness of debt can give arise to income, also known as cancellation of indebtedness “COI”.  With regard to foreclosures and short sales, banks will typically issue either Form 1099-C or Form 1099-A to record the COI to the IRS.  At that point, the taxpayer will need to address this issue of COI.  COI income can be extremely troublesome because the income is not associated with a physical cash payment, and it may be difficult for the debtor to pay the resulting tax liability.
 
Under Code Section 108, however, there is relief by granting certain exceptions and exclusions from the recognition of income.  Sec. 108 specifically provides these benefits.  The COI income may be excluded if the debtor is:

(a) bankrupt (Sec 108(a)(1)(A))
(b) insolvent (Sec 108(a)(1)(B))
(c) related to farm debt (Sec 108(a)(1)(C))
(d) related to real estate used in a business (Sec 108(a)(1)(D))
(e) related to real estate used as principal residence (Sec 108(a)(1)(E))
(f)  related to student debt (Sec 108(f))
 
If cancellation of indebtedness is not recognized due to these exceptions or exclusions above, the taxpayer must reduce certain tax attributes.  These attributes could be NOLs (net operating losses), general business credits, cost basis in real estate, etc.  Likewise, the taxpayer must report the exclusion of COI income and the reduction of tax attributes on Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness.”  Also, the taxpayer will need to describe the transaction that produced the COI and identify the property whose cost basis is being reduced.  Code Section 108 is a very difficult section to grasp, a new section that does not have significant guidance from the IRS now or state court rulings. 

I hope that this brief article is helpful in your understanding of the possible tax implications to cancellation of indebtedness as a result of foreclosures and short sales.  If you have questions, you are not alone!  Please call me for more information and assistance.   My phone is 843-815-4749, email PaulGrizCPA@gmail.com.  

Lighthouse Tax and Accounting provides complete accounting, auditing and tax preparation services.  To Go Gated Realty Blog readers, I am offering a 25% discount on tax preparation fees for 2010 based on your 2009 fees.  This offer expires December 3, 2010 and is subject to certain conditions.

Foreclosures Continue in the Best Hilton Head Communities 

Sea Pines has two lots and two villas in foreclosure today.

Today most every gated community on Hilton Head Island and Bluffton has at least one home, villa or lot in foreclosure for sale.  The communities include the best: Sea Pines (2 homes, 2 villas), Wexford (2 lots), Long Cove (2 homes, 2 lots), Shipyard (2 villas), Forest Beach (12 villas), Hilton Head Plantation (3 homes, 3 lots) , Indigo Run 2 homes, 3 lots), Palmetto Dunes (1 home, 1 villa), Folly Field (1 villa, 2 lots) and Palmetto Hall (2 lots).  Off-Island, they include  Colleton River, Belfair, Berkeley Hall, Moss Creek, Rose Hill, Hampton Hall, Hampton Lake, Buckwalter communities and more. 

The latest statistics about foreclosures from the Hilton Head Multiple Listing Service* are:

• Homes- today 3.3% of all homes in the Hilton Head area for sale are foreclosures, 81 homes of 2,445 total.  In June, there were 2.9% foreclosures for sale, 80 of 2,779.   On Hilton Head Island alone, foreclosures for sale are only 2.2% of the total, just 22 of 1,000 homes.  
• Villas – today 3.2% of all villas for sale are foreclosures, 37 of the 1,146 total for sale.  In June, 4.3% of all villas for sale were foreclosures, 55 of 1,279.  On Hilton Head Island only, excluding Bluffton, Hardeeville and other areas across the bridge from the Island, 3.0% of villas for sale are foreclosures, 31 of 1,030 total.  
• Lots – today3.8% of all lots for sale are foreclosures, 65 of 1,722 for sale.  On Hilton Head Island, 6.3% of all lots for sale are foreclosures, 26 of 412.  I did not report the statistics for lot foreclosures in June.  

Remember that a great deal is not always a foreclosure!  Look at all properties that meet your needs and have good prices.   To find these properties, search them on gogated.com and gather the information that you want, then connect with a good and experience agent who can help you with your search, answer your questions and advise you about your concerns and set you up with the  Buyer’s Advantage™ system, the best way to monitor the market and find a bargain. 

To get a super-bargain, you must know about it right away and that is what a good agent and Buyer’s Advantage™ does.  There is no better way to monitor the market.  To receive the Buyer’s Advantage™ system without cost or obligation and for more information about foreclosures and good deals of all kinds, please contact me, the Hilton Head Gated Communities Specialist® today!

*The MLS of Hilton Head Island requires this disclaimer: “The statistical data contained herein has not been verified by the Multiple Listing Service of Hilton Head Island, Inc. and the publication of information hereof is not a representation or warranty of any fact whatsoever.”

Richard Kadesch, Owner and Broker-in-Charge The Gated Community Specialist ® Go Gated Realty ® Hilton Head Island, South Carolina Rich@gogated.com www.GoGated.com 1-800-333-5025 Read Some of My Clients’ Success Stories