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Duration : 0:0:58

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Cancellation of debt income reported to the IRS on form 1099 C

So we talked about 20 million homeowners are upside down on their mortgages, thousands of their homes are being foreclosed on every week, property values may still be declining in some areas. Homeowners are walking away, they are doing foreclosures, there is a deed in lieu that people may not be aware of, loan modifications in many different shapes, forms and fashions and short sales.

These are all things that do have tax implications that a lot of people are not aware of. Each has its own consequences thats why we have asked Mike Patenella, a CPA to be with us today on the air. Mike tells a little bit about yourself.

Well I am a CPA. I have been in public accounting since 1988, I have my own tax practice and operate out of Scottsdale, and we focus on tax-preparation, advance planning for high net worth individuals and small businesses throughout the Valley. I moved to the Valley in 1990 back from New York.

You know, I have had the opportunity to work with Mike as a strategic partner as well and I share a number of clients. Each time I have had the honor of providing him a referral for tax work the outcome has exceeded expectations, so I am really pleased to be part of the discussions today and to work with such a great group.

It has been a pleasure, and again if you’re talking about that strategic partnership, the financial power team, as our good friend Dan Havey likes to call it, the outcome is important, but when a client calls you up or a homeowner calls you up and says thank you so much for sending me to Brett or Mike, what a great job, wow. Thats the greatest, again Mike thats why youre here with us today

So we should probably dive right in. I know we’ve been talking a lot the last few weeks about loan modifications and how Velocity Financial can help in that regard. But, help me out, even for my financial planning perspective what are some of the implications of taking this approach. For example how does the IRS look at people who don’t pay back their debt?

Well they do have a record of who does not pay back their debt because the banks have to send a form 1099C to anyone who gets any debt forgiven and what that does is it lists how much debt youre able to walk away from. And the reason they want to track that is unless you qualify under certain exclusions that is taxable income to you.

A question for you on that and I honestly don’t know for sure the answer to this, so let’s use a simple scenario, my favorite one is a guy owes $400,000 on his house and he does a short sale for $300,000. A laymen would think that there is going to be $100,000 he is going to get a 1099C for, a 1099C form from the lender that they didnt pay the moneys back for. What about the other cost the lender incurred? For instance even though they sold it for $300,000 there are still real estate commissions, title, deeds all kinds of closing costs, and things like that, that the lender loses below that 300. Do you know if thats included?

Yes that would be almost like lending you additional money to cover those costs.

So in other words if I owe $400,000 and sell it for $300,000 in a short sale, the bank is going to spend $112,000 I saw in a report today, youre getting a 1099C for that right?

In that example yes

The foreclosure cost, I just read today, the average foreclosure costs $112,000, average cost, thats legal fees, carrying cost, all these different things. Thats a lot of 1099C income.

Duration : 0:6:23

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Part 1 (Excerpt)

Expert tax advice from a CPA regarding a real estate related issues

Today’s show has a timely message. We have with us, an expert in the tax ramifications of the different types of mortgage situations that people find themselves in, we have brought in Mike Patenella, that I will introduce in just a moment, as well as Brett Fallon is back with us. Were going to be talking about the tax ramifications of short sales, foreclosures, and some of the different types of loan modifications.

Now if you listen to our show regularly, of course you know, we have been over the last several weeks, talking about loan modifications, but we have been getting hundreds of e-mails and calls requesting more information on the loan modifications. There are also some interesting questions that people ask about whats going to happen in regard to taxes. Thats the one thing that so many people are not talking about.

Well we need to talk about it. Its something that we need to bring to you that you can hear and thats what were going to focus the majority of today’s show on. Before I introduce Mike I need to introduce one of my very best friends and the best financial advisor I have ever known, Brett Fallon. Brett thanks for being on the show today.

Brett also has some information in regard to the markets and there is some really great, exciting stuff out there. But before I throw that back over to Brett, we have our expert guest today. He is a CPA and his name is Mike Patenella, thank you for being on the air with us today.

Mike is an expert in taxes, he is a CPA, he knows the ins and outs of all matters tax. His expertise in this particular area is widespread. Mike is an expert and will have specific answers to questions that we have put together. If you have had a foreclosure or youre facing foreclosure or if youre considering a short sale or bankruptcy, any number of things. Were going to touch on each just a little bit.

But we have a few numbers on our staff who are experts in loan modifications, we have put together a great video that helps explain the process, it’s about seven minutes long. And we will get that sent out to you in immediately.

Duration : 0:5:25

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But think of all the time we wasted while the first scheme predictably failed. And how much better off we’d now be if we had provided credit directly through credit unions or small healthy community banks or, as happened during the Depression, through a new entity like the Reconstruction Finance Corporation.

Luckily, there is a plethora of economic Galileos out there who recognize that the old bank-centric cosmology is just plain wrong. But while Joseph Stiglitz, Simon Johnson, Jeffrey Sachs, Nassim Taleb, Niall Ferguson, Paul Krugman, etc. are not being imprisoned for life for their heretical views — they are also not being listened to. Which is really surprising for an administration that has prided itself on a “team of rivals” approach.

Worse, as the fundamental flaw in the administration’s cosmology becomes more and more evident, the economic team around the president is closing ranks. Even David Axelrod, once the administration’s champion of a more skeptical view of a bank-centric universe, appears to be peering through the Geithner-Summers telescope.

Back in February, he crossed swords with Geithner, arguing for executive pay caps. But there he was on Sunday, whiffing on a pro-populist softball offered up by Fox News’ Chris Wallace, who asked: “When taxpayers are putting up most of the money and taking more of the risk, why would the Obama administration allow some of these executives to get even richer?”

Axelrod’s answer? “On some of these programs, we’re asking financial companies to come in and help solve this problem by providing more lending, by buying up toxic assets and so on. We don’t want to create disincentives and undermine the program.”

“Asking” them? Aren’t we, in fact, bribing them with massive capital infusions and loan guarantees? That’s what being surrounded by a group of modern day Ptolemys will do to a person.

Of course, it’s less of a surprise that Geithner and Summers believe in bank-centrism — they’re both creatures of it. Which is why it wasn’t a shock when it was reported this weekend that Summers had received $5.2 million for advising a hedge fund last year, or that he received hundreds of thousands of dollars in speaking fees from some of the very banks — including J.P. Morgan, Citigroup, and Goldman Sachs — that have been on the receiving end of billions in taxpayers money. Billions that have come with very few strings attached — and almost no transparency.

I am in no way suggesting there is anything corrupt about this or any quid pro quo involved. It’s just that in a bank-centric universe, funneling no-strings-attached money to too-big-to-fail banks is the logical thing to do.

So is arguing that the banking crisis is just a liquidity problem rather than an insolvency one, as Geithner continues to do (and if the stress tests come back declaring Citi solvent, it will be high time to start stress testing the stress testers).

President Obama needs to open his inner economic circle to those untethered to this flawed way of thinking and acknowledge that navigating our economic crisis using maps based on a cosmology that places banks at the center of the universe can only lead to our being lost at sea for years to come.
http://www.huffingtonpost.com/arianna-huffington/the-obama-economic-teams_b_183744.html

Duration : 0:7:11

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Part 4 (Excerpt)

1099 C is for Cancellation of Debt Income Only, not for Interest Rate and Payment Reduction

So for people who find themselves in a very difficult situation considering these options whether it’s a loan modification or a short sale, whatever they need to do to relieve themselves of this particular burden of a mortgage, that for whatever reason they’re no longer able to maintain, they are not always considering the tax ramifications associated with taking a specific course of action, like this example the short sale option.

Right there is actually two pieces of tax component here, you have the forgiveness of debt income that we talked about, they still have the fact that you sold your house and you have to see if there was a gain on that. Over and above the cost basis of the home.

We talked about the 1099Cs a few moments ago, did you say that the lender sends a copy of the 1099C to the IRS? Absolutely.

Now I’m the guy for a few minutes ago who bailed on $400,000 and sold it for $300,000 am I going to get a copy of the 1099C if I haven’t given my lender my new address. Well that could be a problem, they will send it to the last address they have on record for you. And as a homeowner it’s my problem.

The IRS will get a copy, so they will look for it on your return, if you forget to put it on then you’re going to get a friendly notice from the IRS.

If somebody is going to do a short sale, its a fairly civil transaction and when I say civil I mean going for a short sale is horrible for them and their family, but it beats the alternative which is foreclosure, and I think the real problem is when there’s a foreclosure and the guy just walks away and moves off to El Centro California, he’s the one who’s really getting hurt.

So in the event that somebody takes a course of action, and I know that Velocity financial and Michael Barnes, youre not necessarily advocates for that short sale approach. It’s not normally the best course of action, we’ve been talking about loan modifications and it would help me when I talk to clients, or people who call from radio broadcasts who asked questions about loan modification process as part of a financial strategy, help me with some of the tax ramifications. Let’s say that I have a loan and I know the best thing for me is a loan modification, am I going to be faced with a 1099? A tax bill at the end of a loan modification?

Yes, the first of the two tax implications will apply which will be the debt forgiveness part.

I didn’t mean to interrupt you Mike, well I said there are several different types of loan modifications, I believe are you asking about when the loan modification is where they actually do forgive some of the debt?

Thats a point, I know there’s been a lot of discussion on the use of the TARP funds especially from the federal government regarding these banks that qualify for some of these funds, they have to do principle reductions for their mortgages. So let’s say there isn’t a principal reduction involved, from that aspect, its not a taxable event that could take place, since I’m not reducing my principal, I’m simply getting a reduction in my term or my rate.

That’s right, the only time that taxes would come into play is when the principal gets reduced because thats forgiveness of debt.

So let’s take that one step further, whatever mortgage interest I’m able to deduct on my taxes may be impacted if it’s a lower percentage, right because youll be paying less interest, but there’ll be no surprise 1099 coming your way if its just an interest modification.

One of the things that I like to make thing clear is that were trying to do the best for you the homeowner so you can stay in your home. The situation I’m talking about, the $400,000, the lender is more likely than not is not going to forgive $100,000, however the same lender is more than willing to reduce your interest rate so that your payment would be the same if they have done the principal reduction, because it’s not a permanent loss for the bank. If there is someone out there who’s telling you that they can have your mortgage reduced by tens of thousands or hundreds of thousands of dollars, it’s not going to happen and I doubt it’s going to happen anytime soon.

Duration : 0:5:58

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Copyright MSNBC 2009

unemployment banking crisis consumer loans credit bailouts risk bonds commercial bank the Fed Federal Reserve bonuses regulation stimulus moral hazard Goldman Sachs commercial bank TARP profits Today Show Geithner Bernanke reulatory reform

Duration : 0:2:54

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Duration : 0:0:27

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From Meredith Whitney’s website.

http://www.meredithwhitneyllc.com/fir…

Meredith Whitney is the CEO of Meredith Whitney Advisory Group, LLC, a macro and strategy-driven investment research firm.

In 2009, Ms. Whitney was named as one of Time Magazines list of 100 Worlds Most Influential People and was ranked the #1 Investment Analyst in her category by The Wall Street Journal.

In 2008, Ms. Whitney was named one of Fortunes Top 50 Most Powerful Women, The Wall Street Journals 50 Women to Watch, Smart Moneys Power 30, and Crains 40 Under 40.

Ms. Whitney was also ranked in Institutional Investors 2008 All American Research Team.

Well followed for her core research, Ms Whitney and her team also focus on a broad section of financials including large, small, and mid-size banks, brokers, independent commercial and consumer finance companies.

Prior to founding Meredith Whitney Advisory Group, Ms. Whitney was a Managing Director and Senior Financial Institutions Analyst for Oppenheimer & Co. Inc.

Throughout her tenure at Oppenheimer, Meredith was most noted for her research on the ultimate decline in home prices, the future of the US mortgage industry, and the consumer lending market, including specific focus on the credit card industry.

In 2007, she wrote prolifically on the threats surrounding the weighted influence of the rating agencies on regulatory capital determinants and the risks of the monoline insurers on financial institutions.

In 2006, Ms. Whitney presented to the FDIC on the U.S. consumer and the risks in the sub-prime market.

Previously, Ms. Whitney worked as a financial analyst at Wachovia Securities, CIBC World Markets, and Oppenheimer.

Duration : 0:1:1

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Duration : 0:0:29

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Part 8 (Excerpt)

If facing financial issues make sure you hire qualified help, mortgage broker, financial planner, CPA and attorney

So with the real estate market, we know here in Arizona, there are literally hundreds of thousands, maybe millions of people that are confronted with a very difficult decision, declining home values, upside down in the home, the home value is worth much less than they actually owe, we need to give them options. If the option is foreclosure, short sale or loan modification, I would take the modification approach, most likely we would have to look at a person’s situation a little bit closely, but as I am going down some of the things that we have prepared for the show today, it looks like there are four main issues that people should know they need to consider, the cancellation of debt income, capital gains tax issue, the deficiency judgments side, and the credit report side and Mike, I know you can talk to some of these things.

But we brought up in the first segment what I think this might represent and then I think we started to talk about how Mike can help people minimize the impact of what that would look like on the tax return or eliminate based on the situation, so let’s make sure that the people know these four concerns are something they should consider as they seek advice.

Absolutely, and it’s really important that you talk to each arm of the team. You’re not going to be able to make all of these decisions just by talking to your tax guy, or your mortgage guy. They all need to be on the same page, because one of the decisions by one of the three is going to impact the other two aspects of the situation.

Mike, that’s a really good point. And thats one of the reasons why we work together, Brett and I are working together and you and Brett have been working together for years and the three of us have like ideals and also know for the most part what the ramifications are from any one of our decisions. And we make sure were able to do the very best for the homeowner every single time, whether it be tax, financial advice, or loan modification, or even refinance.

People forget that we talk so much about loan modifications. It’s kind of nice because youre listening to all these lying ads about refinancing and other crap that’s gone on out there But the reality of it is there is still money out there to lent. Were still helping people out with refinancing and refinance is the first thing people should try to do with a bank thats licensed by the federal government to do these types of high loan to value FHA type loans.

You cant muddle through the tax issues without Mike Patenella working with you, and you sure should not be making huge financial decisions without Brett Fallon and his team. So we all work hard to make sure that your ultimate goal is in your best interest.

I know were getting up to the end of the hour the show is about to draw to a close, but to just give people a sense that what were talking about today is the ability to have your personal financial situation accessed. Were going to take a look at modification options or refinance options. If your mortgage is distressed were no longer suits your needs. You’re looking to move whatever it is. We will look at your tax ramifications and Mike Patenella will be happy to go through those issues with you step by step basis. And I would be happy to take a look at your overall financial picture and give you some guidance or suggestions on things that will improve the financial situations.

Duration : 0:6:50

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