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Re: Forgivness letter to former Tenant
by MrDan (Georgia)
on April 4, 2012 @09:52
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IRS and ‘Cancellation of Debt’ One final thing to do, before you totally give up collecting past-due rent is to give an ex-tenant 30 day advance notice that unless payment is promptly made you will forgive or cancel the debt. Let your tenant know that if you cancel the debt, you are required to report the cancellation of debt to the IRS and this will probably trigger a letter and/or audit by the IRS into their affairs. The objective of this strategy is that many residents will want to pay you instead of answering to the IRS. Again give your resident advance notice that you will be cancelling the debt before you actually notify the IRS, so that the resident will have time to pay you. If your resident does not respond, file a form 1099-c with the IRS. This is a miscellaneous income statement called ‘ Cancellation of Debt’. You are telling the IRS that the resident received income in the form of unpaid rent, a debt owed to you. If resident has failed to declare this as income on their return, which is unlikely, the act of you filing the 1099-c automatically triggers an IRS audit, or at the least a letter from those friendly folks. Remember, you’re your original intent in warning the resident was not to get revenge for the frustration they put you through, but many landlords do savor the thought of getting back at residents with the help of the IRS. Just make sure you get the social security number when residents submit their rental application. You will need the number should you ever have to file a 1099-c in the future. It only takes a few minutes to fill out the form, which is supplied by the IRS. You mail it to the last known address of resident. You also need to send a copy to the IRS along with a 1096 which gets the information into the IRS and State computers. This should have no effect on your tax liability because you have not received the income. Keep good records this year of any outstanding debts. In December send out warning notice that you will be cancelling debt if payment is not made. Then in January follow through and send forms to the IRS on residents who didn’t pay their accounts.
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Re: Forgivness letter to former Tenant
by Nicole (PA)
on April 4, 2012 @11:10
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if they pay us at some point later in time, is there follow up required or have we given up all rights to the $$$ owed us. I guess I'm asking if there is a "do over" for us if they come up with the money a year or so down the road.
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Re: Forgivness letter to former Tenant
by MrDan (Georgia)
on April 4, 2012 @11:20
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You are forgiving the debt. Most likely the former tenant will come up with the money instead of having to deal with the IRS. But NO, you have forgiven the debt and their is no do over.
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Re: Forgivness letter to former Tenant
by Nicole (PA)
on April 4, 2012 @19:23
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I've been thinking about this this afternoon and what is the upside for the tenant? On our side, we would already have a judgment against them as leverage for the future. Example - they owe $1000 to the landlord. the landlord forgives the debt and turns it into the IRS. Landlord gets $0 in their pocket. If tenant is in the 15% tax bracket, they'd owe $150 ... a better deal than $1000. Even if they're in the 35% bracket, that's just $350.
I know that when a creditor such as a credit card company does this they're getting "something" ... they take a certain percent of the debt and then 1099 the balance.
I'm guessing most people who don't pay, can't pay.
I'm missing the upside for the landlord ... what don't I get here?
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