Roberto Romagosa not only will prepare your income tax returns, but also will provide you with other services to compliment your goal of saving the most tax dollars. Income Tax Preparation services provided at the Riverside office ONLY.

Individuals

Real Estate

Due to the complex nature of the real estate laws many tax preparers are unaware of methods available to reduce your tax obligations. With our extensive knowledge in taxes and experience in real estate, our firm will provide you with the best service utilizing the combination of both business services.

Cancellation of Debt: Rules and Exclusions

A creditor forgiveness of a borrower’s debt gives rise to Cancellation of an Indebtedness for the borrower. Because the borrower gets to keep the funds, or does not have to pay back funds already spent, under tax laws, this will create a taxable income to the borrower, COD.

There are many cancellation of debts involved in credit cards, automobile repossessions, and in many other transactions, but we will concentrate ourselves in REAL ESTATE transactions only.

California Anti-Deficiency Laws prohibit secured lenders, under certain circumstances, from pursuing certain protected borrowers for the unpaid mortgage balance on the property, who incurred the loan in the purchase of their homes (principal residence) when the property contains one to four units and the property was used to secure the loan.

Accordingly, a loan to purchase or build a principal residence is, by California Law, NON-RECOURSE. The lender only has recourse to the property, but no more. If the property does not have sufficient value to pay off the loan- tough luck for the lender, it cannot do anything about it, just write off the loan on its books. However, refinanced loans are RECOURSE, unless used to improve substantially the property, and be secured by it

There is NO CANCELLATION OF DEBT INCOME (COD) with NONRECOURSE LOANS

A RECOURSE loan means that the owner is personally liable for that debt, and the lender can go after (has recourse to) other assets if the FMV of the property taken back is less than the outstanding loan balance.

Therefore, if a debt for which the owner is personally liable is canceled (forgiven), he must include that amount as income, ORDINARY, NOT CAPITAL GAIN.

So, Is the loan RECOURSE or NONRECOURSE?

The default answer is that a loan is recourse unless is made nonrecourse in one of two ways:

• By specific terms, or
• By operation of the law

RECOURSE LOANS

When a lender forgives or reduce your debt, it is a taxable transaction and is reported to the IRS on form 1099C and is considered ordinary income.

Foreclosures

Is an equitable proceeding in which a bank or other secured creditor sells or repossesses a secured asset due to the owner’s failure to comply with the terms of the loan.

A foreclosure is a Disposition of a Property, an under tax laws, it is considered a regular sale for purpose of reporting gain or loss.

In a regular sale, the sale price is establish by the negotiations of the seller and the buyer, but in a foreclosure, the sale price is the FMV of the property reported by the bank in the 1099s.

Many lenders will report as the FMV, the price at which the foreclosed property was sold at a trustee’s sale, which is generally substantially less than the true FMV.

We will analyze each 1099 issued by the banks and apply the correct price to the transaction.

Short Sale

Is selling the home for less than the mortgage balance and the lender forgiving the unpaid amount.

A reason for debtors to consider a “Short Sale” instead of a Foreclosure is to try to protect their credit history.

Loan Modifications

The Mortgage Forgiveness Debt Relief Act may exclude debt forgiven under certain circumstances on a principal residence.

Exclusions

There are Exclusions from the general rule that we will utilize to reduce these taxable transactions to ZERO

• Bankruptcy
• Insolvency
• Qualify Real Property Business Indebtedness
• Qualify Principal Residence Indebtedness

There are other issues regarding these transactions, such as:

• Bank Errors in the 1099s

It has become a common practice for banks to make errors in the reporting of the 1099s, leading to thousands of dollars of additional taxable income.

• Adding interest to the mortgage balance.
• A Lower Fair Market Value of the property, therefore, increasing the cancelled debt.
• Mortgage balance reported as the amount of debt cancelled (huge mistake).

We will correct and adjust all these errors and report the right amounts.

Businesses

We will prepare for you the following tax returns involving:

• Sole proprietorship’s
• Partnerships
• Corporations
• Tax Exempt Organizations