Scribd
Upload
719 views1 page

Tax Memo 1

This memorandum discusses the tax implications of a client's home foreclosure. The client's outstanding loan balance of $170,000 was greater than the home's fair market value of $150,000 after foreclosure. Recent legislation allows for up to $2 million in mortgage debt forgiveness to not be considered taxable income. Based on the figures provided, the client's debt forgiveness amount will be below this threshold. The client only needs to complete Form 982 for their tax return. Additionally, the client will need to wait 3 years before qualifying for another home loan according to FHA guidelines.

Uploaded by

Melanie Macks Reza ت
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
719 views1 page

Tax Memo 1

This memorandum discusses the tax implications of a client's home foreclosure. The client's outstanding loan balance of $170,000 was greater than the home's fair market value of $150,000 after foreclosure. Recent legislation allows for up to $2 million in mortgage debt forgiveness to not be considered taxable income. Based on the figures provided, the client's debt forgiveness amount will be below this threshold. The client only needs to complete Form 982 for their tax return. Additionally, the client will need to wait 3 years before qualifying for another home loan according to FHA guidelines.

Uploaded by

Melanie Macks Reza ت
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 1

MEMORANDUM

To: Tax Director

From: Melanie Reza

Date: November 23, 2009

Re: Tax Consequences for Debt Forgiveness

We have a client that has recently gone through a foreclosure on her home and the fair
market value of her home is lower than the outstanding loan balance due to the fall of the
mortgage market recently. She has asked us to go over the implications that this
foreclosure will have on her taxes and what if any tax liability she will have with this
action. She will be receiving a 2009 1099-C Cancellation of Debt form from her
mortgage company once all of the liens and transfer fees have been settled and there is a
total net number of her outstanding loan. At this time, she has told us that the
outstanding loan balance will roughly be $170,000 and the home has a fair market value
of $150,000.

After research through the Internal Revenue Service website (www.irs.gov), the
Mortgage Forgiveness Debt Relief Act of 2007, enacted on December 20, 2007 has
provided for up to $2 million of forgiveness on your principal residence for a married
couple and up to $1 million for married filing separate returns. Legislation enacted in
October 2008 extended this relief through 2012. In most cases, eligible homeowners
only need to fill out a few lines on Form 982 Reduction of Tax Attributes Due to
Discharge of Indebtedness (and Section 1082 Basis Adjustment).

At this time, the client need only complete Form 982 along with her normal return.
According to the figures that she has presented us with, the loss that will be reported to
the client will be minimal and well below the $2 million dollar threshold that the
government is now allowing for. Through other outside research on the FHA website
(www.fha-home-loans.com) it states that any foreclosure must be at least 3 years old in
order to qualify for a new home loan. For full client disclosure, I would suggest giving
the client further information on how she can position herself to improve her credit and
re-qualify for a loan after this time period has expired by referring her to our tax planning
department and trying to cross-sell the client for future income flows.

Please find attachments from the websites sited above for your information. If you have
any questions, comments or concerns, please do not hesitate to contact me for further
research and reports.

You might also like