The most common question that arises when seller's are considering a short sale is what are the tax consequences when I sell this home.
Well first the disclaimer: Please see a CPA, your tax professional, or a lawyer prior to making any decision that you feel may or may not have tax consequences associated with it. I am not a tax professional and recommend that all clients and individuals seek the advice of a tax professional in regards to short sales.
So with that out of the way let's go over a few situations that have happened to clients in the past. In addition for more short sale articles on our blog go to Short Sale Information.
Short Sale Issues
- Will I get a 1099? - The answer to this is more than likely. In order for banks to get the loss off of their books they will issue you a 1099 which may be considered debt relief.
- Will I owe taxes on this? - First, if you owe taxes it may be at your standard income tax rate.
- You may not owe taxes if it is your primary residence. You may be able to take your home owners exclusion for owning the property for 2 years as your primary residence.
- If it is not your primary residence and you have not refinanced your property your accountant or tax professional may be able to show this as a loss and that you did not make money on this property.
Foreclosure Issues
- Will there be tax consequences on a foreclosure - More than likely yes. A foreclosure and a short sale are both considered debt relief. It is out belief that a foreclosure provides a far greater possibility of a great amount owed for debt relief.
Prior to making any decision ask your real estate professional to refer a tax advisor to you or seek out your own tax advisor. The only thing you should not do is wait.
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