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Discussion:HAFA Short Sale Incentives to Seller

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Discussion Forum Index --> Tax Questions --> HAFA Short Sale Incentives to Seller


NatalieR (talk|edits) said:

23 July 2012
I have a client who just closed on the short sale of his primary residence. He received a $3k incentive and a $24k "homeowner incentive" from the lender (B of A) as part of the governments' HAFA program.

Both of these incentives show up on the HUD settlement statement under "Reductions In Amount Due To Seller" I've researched this and can't find anything that says how these payments will be treated, will they be taxable to my client? Will they show up somewhere on his 1099-C when he gets that? Or do they simply reduce his basis in his principal residence?

Any help is greatly appreciated!! Natalie

DaveFogel (talk|edits) said:

23 July 2012
If these incentives show up on the HUD settlement statement as "Reductions in Amount Due to Seller," then didn't the seller PAY these amounts? If so, then they represent either selling expenses or a reduction of the sales price.

NatalieR (talk|edits) said:

23 July 2012
My understanding is that the bank paid these amounts on behalf of the seller (my client). The seller did not pay these amounts. The email from my clients attorney states that these incentives are closing costs.

It is confusing the way they show up on the HUD statement, I don't really understand it.

DaveFogel (talk|edits) said:

24 July 2012
If the bank paid these amounts on behalf of the seller, and they show up as reductions in the amount due to the seller, then it appears that the seller is reimbursing the bank for these incentives. Again, it appears that they represent either selling expenses or a reduction of the sales price.

As such, I don't see how they could show up as separate items on a Form 1099-C. Indirectly, since they appear to reduce the amount of net proceeds from the short sale that are applied against the principal balance of the loan, they may result in a larger amount of canceled debt that will show up on Form 1099-C.

DavidG (talk|edits) said:

26 October 2012
I have the same situation and BofA is involved. BofA indicated, in a cover letter, the relocation payments will be reported on Form 1099-C, along with the amount of debt foregiven. Now I have to figure out what is taxable, if any.

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