What is the Short Sale Tax?
Many people are concerned (and rightly so) that they may be taxed for the forgiven amount on their short sale. For those of you who don’t know, this is a short sale. Basically, you owe say 200,000 and the home short sales for 150,000, so on your next tax statement you could be 1099’d for 50,000. This would be a problem for most people!
The good news is that the government has provided relief from this potential tax problem.
You can read all about it on the IRS website, they call it “The Mortgage Forgiveness Debt Relief Act and Debt Cancellation”. At the time of this post, it is still active, but check with the IRS to make sure it is still valid for you today. There are certain (but very simple) restrictions. In simple terms (always consult with your tax preparer), if the home is your primary residence you won’t pay this tax if you file the provided form.
So… In summary: do I have to pay tax on my Short Sale?
No, most people will not have to pay tax.April 29, 2011