Investment Property Generates "Phantom Income"
source: http://www.thinkglink.com/article/2009/11/13/investment-property-short-sale-generates-phanto...
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- IlyceGlink
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Real estate investors whose properties are worth less than the mortgage amount don't get to take advantage of the special protections and tax benefits that Congress has bestowed upon homeowners who are in trouble with their primary residences.
When an owner sells a property through a short sale, the lender will send a 1099 for the difference between what was owed and the amount accepted on the loan.
The release of indebtedness by that lender – what you should have paid back the lender – is considered a “gift” from the lender to you. The IRS considers that amount to be taxable income. That’s why the amount that is forgiven is taxed.
Some people refer to the release of indebtedness as "phantom" income because evern though you don't have any more money in your pocket, you owe tax
on this phantom cash.
When an owner sells a property through a short sale, the lender will send a 1099 for the difference between what was owed and the amount accepted on the loan.
The release of indebtedness by that lender – what you should have paid back the lender – is considered a “gift” from the lender to you. The IRS considers that amount to be taxable income. That’s why the amount that is forgiven is taxed.
Some people refer to the release of indebtedness as "phantom" income because evern though you don't have any more money in your pocket, you owe tax
on this phantom cash.
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- tags:
- Economy, Money, Real Estate, Investment
