Tax Prep by Deb Posted April 2, 2009 Report Share Posted April 2, 2009 I have a new client, a friend of mine, who brought me her 2008 papers to file her tax return. In checking on the simulus amount she received online, I discovered she had not received anything, however based on what limited papers she brought me from 2007 she should have. The only papers from her 2007 tax return was the extension that her previous preparer filed for her. She paid what taxes it said she owed and she thought everything was fine! As it turns out the other preparer states that they had been trying to get a hold of her for some additional information so that they could file her 2007 return. It had never been filed. She brought me the papers that her previous preparer had and it has a 1099C in 2007 for a home she had purchased and sold via a short sale. The short sale was enough to satisfy the main loan, but the 1099C is for the second. It's about 119,000. Here's were I need some advise. My client is very honest and when I asked her if she lived in the home she said no, not ever. It was never a rental either. Here's where the story gets interesting. Her son asked her to co-sign for this home which he lived in and made the payments on till he got tired of it. Come to fine out, she never co-signed, his name was never on the deed nor mortgage. She can't claim the homeowners relief because she never lived in it, and it was never a rental so therefore any loss on the sale is not deductible. And although my client is not wealthy, she doesn't have any liabilities, so it's not likely that I can show insolvency. In your opinion is she stuck for the full $119,000 as income? Do you know of anyway around this? I sure would appreciate some advice. Deb! Quote Link to comment Share on other sites More sharing options...
Bart Posted April 2, 2009 Report Share Posted April 2, 2009 I don't understand. She never cosigned and his name is not on the deed or mortgage. How did he get the loan if she didn't cosign? Who's name is on the deed and mortgage? Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 2, 2009 Author Report Share Posted April 2, 2009 I don't understand. She never cosigned and his name is not on the deed or mortgage. How did he get the loan if she didn't cosign? Who's name is on the deed and mortgage? That's the point. The loan was never in his name, it was issued in her name only. It wasn't until 6 months after the purchase, when she tried to get the loan and everything switched to only his name (which the broker assured her would happen) that she found out she didn't co-signed she signed, bought, ect... the home. I think she was swindled by her son and also by the broker, and now she is left with cleaning up the mess! Sorry for any confusion, it sounds reasonable as your typing, but I can see why you would not be able to understand. Deb! Quote Link to comment Share on other sites More sharing options...
Bart Posted April 2, 2009 Report Share Posted April 2, 2009 That's the point. The loan was never in his name, it was issued in her name only. It wasn't until 6 months after the purchase, when she tried to get the loan and everything switched to only his name (which the broker assured her would happen) that she found out she didn't co-signed she signed, bought, ect... the home. I think she was swindled by her son and also by the broker, and now she is left with cleaning up the mess! Sorry for any confusion, it sounds reasonable as your typing, but I can see why you would not be able to understand. Deb! Doesn't it become a rental if the son is making the payments? Or could it be investment property sold at a loss? Quote Link to comment Share on other sites More sharing options...
LindaB Posted April 2, 2009 Report Share Posted April 2, 2009 And although my client is not wealthy, she doesn't have any liabilities, so it's not likely that I can show insolvency. Are you including the $119,000 debt when you look at insolvency? Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 2, 2009 Author Report Share Posted April 2, 2009 Are you including the $119,000 debt when you look at insolvency? Yes, but I am waiting for some additional info. This lady's husband set her up good in case anything happened to him, and it did, he passed away and left her an investment account as well as his pension from IBM. I'm waiting to see what the value of his retirement account was as of the date of foreclosure, but my gut tells me she is not insolvent. Deb! Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 2, 2009 Author Report Share Posted April 2, 2009 Doesn't it become a rental if the son is making the payments? Or could it be investment property sold at a loss? I guess it should have, and if I had been doing her taxes that's the way I would have set it up, but keep in mind that this lady didn't even know she was the sole owner until she came to me. It's when I sat down and looked at everything that she became fully aware of the fact that she did not co-sign, but rather she bought. She assumed both were on title and loan, and that within six months of taking out the loan, she would be removed and son would be sole owner. This was the lie that was fed her either by her son or the mortgage broker or both. So it has never been treated as a rental. As to investment property, this was sort of how I was leaning. Does anyone have a opinion if this would be possible? Deb! Quote Link to comment Share on other sites More sharing options...
Catherine Posted April 2, 2009 Report Share Posted April 2, 2009 How far back (years) does this go? Can you amend those prior years to show it as a money-losing rental (which is in fact what it was)? That makes the loss a business loss. doesn't make the son any less slimy. Or the broker, either. But those are non-tax problems. Or only tax problems sort of sideways. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 2, 2009 Author Report Share Posted April 2, 2009 Does anybody have any additional thoughts? Deb! Quote Link to comment Share on other sites More sharing options...
michaelmars Posted April 2, 2009 Report Share Posted April 2, 2009 How far back (years) does this go? Can you amend those prior years to show it as a money-losing rental not to a relative its not. unless she was getting a fair market rent for it Quote Link to comment Share on other sites More sharing options...
Catherine Posted April 2, 2009 Report Share Posted April 2, 2009 How far back (years) does this go? Can you amend those prior years to show it as a money-losing rental not to a relative its not. unless she was getting a fair market rent for it Frack. Forgot that part. What happens when you rent to a relative FOR fair market value and then they don't pay up after a month or two? After all, that's not the deal you made. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 2, 2009 Author Report Share Posted April 2, 2009 How far back (years) does this go? Can you amend those prior years to show it as a money-losing rental not to a relative its not. unless she was getting a fair market rent for it That also was my take on it. I do not know even if he paid her anything or paid the mortgage company directly until he decided he didn't want to pay any more. As to how long this has been going on, my client said that the house was purchased two years prior, so if it was foreclosed on in 2007 that means it was purchased in 2005. My real question is how do I treat this? It was not her personal residence, it was not a rental, could I go investment property and deduct the loss? If I could go this route it would offset the cancelled debt, but not exceed it. Any more thoughts? Deb! Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 3, 2009 Report Share Posted April 3, 2009 I think it might be argued that it was investment property, although I am confused as to why the bank would cancel so much debt if she is in good financial condition? Why did they not go after her for the balance due? And why, when he moved out, did she not try to sell or rent it? Something just does not smell quite right here. Is she perhaps "old and confused" and the bank did not want to look bad if they went after her for the balance? Or perhaps she had them thinking she was insolvent? Something is missing here. Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted April 3, 2009 Author Report Share Posted April 3, 2009 I think it might be argued that it was investment property, although I am confused as to why the bank would cancel so much debt if she is in good financial condition? Why did they not go after her for the balance due? And why, when he moved out, did she not try to sell or rent it? Something just does not smell quite right here. Is she perhaps "old and confused" and the bank did not want to look bad if they went after her for the balance? Or perhaps she had them thinking she was insolvent? Something is missing here. KC, she is older but not old. As to confused, this poor lady doesn't have a clue. It's possible there is an insolvency issue, I am waiting for figures but when I asked for a list of her assets and liabilities she looked at me like what are you talking about. So I explained to her things that would be assets, and as for liabilities the only thing she owes would be whatever taxes this is going to generate. She is currently living with her youngest daughter and prior to this she lived with her older daughter. I believe all through her married life she was sheltered by her husband especially when it came to finances, and now that he has passed away she is relying on her children, not for support financially but in just about everything else. As to why she didn't try to sell it, it was sold as a short sale, and it sold for enough to cover all of the first mortgage and a tiny bit of the second. It's the second mortgage that issued the 1099C. Thanks for responding, Deb! Quote Link to comment Share on other sites More sharing options...
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