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Debt Relief – Insolvency – Bankruptcy Information » Foreclosure Help, Insolvency » Are There Tax Implications for Short Sales?

Are There Tax Implications for Short Sales?

Article by Mayer Dallal

What does it all mean?

Choosing to do a short sale can be a good option for you and your family when you find that you can no longer carry the burden of the payment. However, you do want to be informed as to how the short sale will affect you. The end result of doing a short sale will keep you credit in a better position, but there are short sale tax implications.

A short sale is when the lender will allow the home to be sold for less than what is owed, allowing the homeowner to get out of the loan. The home does not have to be in foreclosure to choose a short sale, but the homeowner must be upside down in the home in order to do one. The truth behind the short sale that you do need to be aware of, is that the lender must approve it, and there are tax implications with short sales.

The form that you receive as a result is called a 1099-C, and on this form it will identify the lender’s losses in the short sale. In the eyes of the IRS, this is viewed as loan forgiveness, so they give you a 1099-C reporting it as income. In the event that you do have any assets that could have been used, then you are going to have to pay ordinary taxes on the amount listed on the 1099. This is no different than anything else in life, but you need to be educated and make the best decision for you and your family.

The tax implications of a short sale are something you need to be aware of, because if you have to pay taxes on it you’ll need to set that money aside. There is nothing worse than not being prepare for money owed on your taxes, and many families find themselves in that position.

Also, one thing you may not know is that there are other types of debt that can be settled, and those creditors can also send you a 1099-C, so settling the debt may or may not be beneficial, but it just depends on what the debt is. The IRS does require that in that case you report that amount to them as income. You may never see a 1099-C from the creditor, but they probably did file it with the IRS regardless, so just be sure.
There are tax implications for short sales, but for other creditors as well. Given the economy you may see more of this happening. This is the creditor’s generous way of letting you know that they don’t like that they settled your debt, or “forgave” you for not being able to pay it.

As a real estate executive and philanthropist, Mayer Dallal provides valuable counsel to individuals and families dealing with economic uncertainty. The advice Mayer Dallal gives his clients is to have options, to navigate this difficult economy with knowledge and confidence.

mayerdallal.com

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