There may be tax ramifications to a short sale. Here’s how:
Example:
$325,000 — Your mortgage balance.
$125,000 — Sales price of your home.
$200,000 — Amount of debt forgiven by the lender. (Cancelled debt.)
The amount of debt forgiven by the lender is subject to federal income tax. For tax purposes it is called “cancelled debt” and you may receive a “1099-C.” The “C” stands for “Cancellation.” For FHA short sales, your lender may issue you a “1099-A.” The “A” stands for “Acquisition or Abandonment of Secured Property.
In 2007, the Bush administration signed into policy the Mortgage Debt Relief Act of 2007 which provides tax relief for cancelled debt. To find out if how this act applies to you, please visit IRS website directly and type in Mortgage Debt Relief Act of 2007: http://www.irs.gov
Act quickly! This tax break expires December 31, 2012!
Download a guide on the Expiration of the Mortgage Debt Relief Act.
FORECLOSURE TAX CONSEQUENCES
With a foreclosure, you are also subject to getting a 1099. It is a different 1099, though. It is called a “1099-A.” The “A” stands for “Acquisition or Abandonment of Secured Property”.
Report: Side by side comparison of short sale vs. foreclosure.
Are you a good candidate for a short sale?
Request a callback from a Las Vegas short sale specialist.
*Keller Williams Realty, Marketplace One is not a tax expert. This information provided here is a courtesy only. Please contact your accountant or CPA for expert tax advice on the tax consequences of a short sale, deed-in-lieu, deed-in-lease, or foreclosure.
