Taxes & Real Estate Transactions by Dennis Bean, CPA (7/19/13) (California)

Taxes & Real Estate Transactions
Dennis Bean
7/19/13

CHC General Meeting Speaker
First American Title, Fresno, CA

Distinguishing Gains from Cancellation of Indebtedness and Dealing with Tax Liens
Gross Income

• According to IRC Sec 61, gross income means all income from whatever source derived including the following:
• Gains from Dealings in Property (Deed in Lieu, foreclosures, short sales, etc are all sales for tax purposes)
• Income from discharge of indebtedness (Debt resolved fro less than full amount owed)
• Exclusions from Income
• 108 - Safe Harbors of Indebtedness
• Title 11 case (BKCY)
• Insolvency
• Farm Indebtedness
• Real Property Business Indebtedness
• Qualified Principal Residence Indebtedness
1. Acquisition Indebtedness not to exceed $800,000 in CA
2. Includes debt to acquire, construct or substantially improve the principal residence of the debtor, secured by the property.
3. Principal residence same test as under the IRC 121(Exclusion of gain on sale of personal residence) (N/A to 2nd homes)
4. Includes refinanced acquisition indebtedness up to $1,000,000
5. Includes limited amount of home equity indebtedness $100,000

Removing Federal Tax Liens from Property

• Certificate of Release
• Used when the tax liability has been fully paid or it becomes enforceable under the law or
• the Government has accepted a bond for payment of the tax
• Requires written request and proof of payment, etc
• Certificate of Subordination
• Allows a named creditor to move ahead of federal tax position on the property
• Generally used when new lender refinances the old debt
• Uses form 14134 to apply
• Certificate of Discharge
• Removes the lien from the specific property identified in the certificate
• Used when property being sold
• Lien remains on other properties
• Form 14135 used to apply
• Certificate of Non Attachment
• Removes an erroneous filed lien from the property names in the certificate
• Used when lien attached to property of wrong person (ie, two people with same name)

Recommendations

• Check the title to the property sooner rather than later to id lien holders
• Prepare lien "discharge/release" process early as it often takes 30 - 45 days to get response to lien request from tax agencies
• Review IRS lien instructions to find out what you need to include in request and where request must be filed (www.irs.gov).

Dennis Bean
Bean, Hunt, Harris & Company
Certified Public Accountants
7110 N Fresno Street #460
Fresno, CA  93720
(559) 221-5071
dennisb@bhhcpas.com