Short Sale, will you owe Taxes?
Tax implications of a short sale?
Your home
Currently, if the home is your Primary Residence the answer is No.
To qualify as a Primary Residence you will need to have lived in the home for at least 2 years out of the last 5 years.
If your property is investment property it is looked at differently.
If you have other assets such as saving and you are not insolvent, you may end up being responsible to pay ordinary taxes on the amount of the 1099-C.
There are several exceptions stated in the Internal Revenue Code. For example, you do not have to report the income on your tax return if the write off of the debt is intended as a gift, you discharge the debt in bankruptcy, or you were insolvent before the creditor agreed to settle or write off the debt. You should consult a qualified tax and legal counsel to see if these circumstances apply.
Much like the issue of credit reporting, the circumstances are individual to the lender. As a short sale represents a loss for the lender, they can report the amount lost a debt forgiveness to the seller. If a formal tax form 1099 is filed, the seller may be responsible for paying taxes on the amount of debt forgiveness.
If you are considering a real estate short sale of your home, you should be aware that you may receive a form 1099-C for the amount of the lender’s losses. This is considered loan forgiveness in the eyes of the IRS.
For more information, contact a Certified Public Accountant or check the IRS Web site.
If you are seeking a REALTOR to help you buy or sell you home you can call us at 916 806 3634.
