Long story short, we had an "income" property in the form of our first house that we had rented out the past two years. Our renters lost their jobs in January and we were not able to cover the mortgage since then. We are short selling the house, but since the difference in the price and what we owe is significant, we will end up owing a lot of money in taxes (since it was not our primary residence).
We did meet with an attorney regarding possibly filing for bankruptcy, and in the end he said it will cost us between $3,000-$4,000 dollars. I think this sounds extremely high and was wondering if anyone has done this and does it really cost this much?
If anyone is (or knows) an attorney that handles bankruptcy, we would be grateful for a referral. Local (not too far from La Grange but willing to branch out a little) would be even better :)
To Chris G. if they are short selling the house the tax is not on the Gain/loss of the house, it is on the debt forgivness. Forgiveness of debt is considered income in the US.
As far as looking for an attorney, shop around. They don't all charge the same. I filed bk in 2010 and paid a little over $1000. As far as the short sale you say you rented it out for the past two years. Did you live in it the three years before that? We were in a similar situation and as long as you lived in the house for 2 years out of the 5 years preceding the short sale the difference shouldn't be added as income. You will still get a 1099. We had our taxes done at some special H&R block that dealt with tricky taxes. Maybe talk to a tax professional to see if that applies to you. Good luck!
Just wanted to add this link, it's from the irs website and it talks about the cancellation of debt. It looks like it's only up to this year, not sure if it's going to be extended or not. http://www.irs.gov/Individuals/The-Mortgage-Forgiveness-D...
Alice E. hit the nail on the head. If I were in your shoes I would see a tax accountant to discover how this will affect your taxes for 2012 filing. That seems to be a very important step and probably should have been done before you put the house on the market. The more you know the better off you can come out the other side of this thing.
We went through bankruptcy and a short sale. I suggest you see my lawyer as we paid maybe half that much and our fees from the short sale were minimal. I will PM you.
Try debt stoppers, a relative of mine had to file bankruptcy. They were homeowners and had lots of credit card debt. They only paid $1,250.00. They offer free consultation and payment plan.
Have you talked to an accountant or CPA about the tax laws? If you lose money on selling property you usually don't owe income taxes since it's not income, it's a loss. This is why you don't owe taxes when you sell your car and pocket the cash. Unless your car is a collectors item that appreciated, cars always sell for less than the original purchase price. Also, we have a second home that is a rental and not primary residence. We've discussed it at length with our accountant and what you're saying does not add up. I think you need to do a little more research on this before deciding on something as drastic as bankruptcy, IMHO.
If you are still in need of an attorney, PM me
My husband is going through this right now and he is going to pay around $2000 I think total for it. THe good thing for us though (not that it's good, but in a slight way) is that everything is in his name only and we have no assets. So, his lawyer said that my credit will be saved and he is the only one that it will affect. Which is good because my credit score is over 750 (phew!)
I had a very simple bankruptcy in 1994 and it cost $900. But I had no home and it was all basically credit card debt. So, in my opinion, 20 years later with an income property to discharge, $3000-$4000 doesn't seem wildly expensive. We paid $2500 to set up a trust last year. I did meet with a Consumer Credit Counseling (non-profit) to discuss my options and they recommended declaring bankruptcy.
