Short Sale Taxes

Concerned about short sale taxes when your transaction closes? The Mortgage Debt Relief Act Expired which added protection to eligible borrowers on their primary residence on tax liabilities.  Now and then many borrowers are looking into with their Certified Personal Accounts if they qualify as insolvent taxpayers. Borrowers under this may not be liable for the 1099 they receive when their short sale closes.

Insolvency?

It’s important that you speak to a CPA for tax advice on your particular situation as we are not a CPA nor tax professional.

The IRS states that a taxpayer is insolvent when his or her total liabilities exceed her or his total assets. The forgiven debt may be excluded as income under the “insolvency” exclusion. Generally, a taxpayer is not required to include forgiven debts in income to the extent that the taxpayer is insolvent. The forgiven debt also may qualify for exclusion if the debt was discharged in a Bankruptcy. Please consult with your Bankruptcy or Tax Attorney in regards to this.

Negative net worth or a discharged mortgage debt through a Bankruptcy? You may have reduced liabilities on tax but there are many more factors to be aware of when completing a short sale.

See the IRS site on insolvency.