All Forum Posts by: Ben Sinkunas

I received call about a potential deal today.  Here are the details:

Home is empty and owner wants to unload it fast.

ARV is $280,000 to $290,000 and needs $30,000 of rehab.

Owner has mortgage of $293,000 and is making the payments.

The $293,000 debt does not show on owner's credit report because of a bankruptcy that wiped out the debt.

They discussed letting it go into foreclosure but I need help seeing if there is a way we can help them from letting it go to foreclosure even though the foreclosure would not affect their credit since the debt has been forgiven.

I am thinking of seeing if the bank would do a short sale so we can help the owner get rid of the house.

I don't think a subject to deal would work since the house is underwater.

Any advice on how to help them would be appreciated!

Thanks!

Ben

You will have a cost basis in the property that should help to offset the 1099C income.  A good CPA can help walk you through how to get the best tax outcome for the transaction.  There are also insolvency rules that they can discuss with you to see if you qualify to not pick up the cancellation of debt as income.

Item 3 of Linda's response is crucial.  We see a lot of people miss that step and end up with a C Corp.

Thanks Grace.  Yes, I think we found a mortgage broker who can average it for my wife so we can use her income.  She only had breaks in income to raise our boys for a while so I think that bodes well for our case.

Thanks again.

Thanks Brie and Elizabeth, both answers are very helpful.

We think we found a lender that can look at a 4 year job history and average it to get what we need.

Thanks again!

Ben

normally you would enter 12/31 because you are a calendar year taxpayer.  Your CPA should be able to advise you as to the correct tax year for you

depending on your income, losses can be taken in the current year or carried forward to offset future income or used when you dispose of the property. 

Is there a rule that says you can't use your income to qualify for a mortgage if you don't have a two years of continuous history of working at the same employer?  We have talked to three different lenders that say we can't use my wife's income to qualify because she has less than two years at the same employer.  We make good money and have cash for a down payment.

You will want your contractors to fill out Form W-9, Request for Taxpayer Identification Number and Certification, and keep them on file so you can file the 1099s each year.  By filing the 1099s and keeping the records on file, you can show the IRS that the monies you paid the contractors were related to your business in the event you were audited.

You will also want to keep in mind that as long as you can considered yourself a "real estate professional" and you have an overall loss (hopefully not!), your losses can be deductible.  You will want to ensure you are meeting the requirements to be a real estate professional, therefore making the losses deductible.