Foreclosure and short sale tax liability

If you are going to choose between a short sale or foreclosure you need to understand the tax liabilities of your decision. There is going to be a certain amount of cancelled debt in either scenario.

You should consult a CPA and/or tax attorney.

The following is general knowledge

1. The lender will issue a 1099-C in a short sale (unless they pursue a deficiency judgment); C is for cancelled.
2. The lender will issue a 1099-A in a foreclosure (unless they pursue a deficiency judgment); A is for abandoned.
3. The 1099 issued is for the amount of the lenders loss from the short sale or foreclosure.
4. The loss is almost always less in a short sale since there is additional cost when the bank forecloses and then has to sell the property. Short sales typically yield a higher purchase price and a lower loss to the lender.
5. The homeowner may not be liable to pay taxes owed the IRS on the 1099 in either case with IRS Tax Form 982 (http://www.irs.gov/irs/article/0,,id=179073,00.html).
6. The homeowner may not be liable to pay taxes owed the IRS per the Mortgage Debt Relief Act (MDRA) (http://www.irs.gov/individuals/article/0,,id=179414,00.html).
7. State tax law regarding 1099’s on short sales and foreclosures is not necessarily in line with federal tax law.
8. Generally speaking you won’t owe the IRS taxes on the 1099-C if you acquired the home with a purchase money loan (vs refinance loan)

Related Blogs

• Related Blogs on 1099
• Consultants: W-2, 1099 or Corp-to-Corp?

• Related Blogs on 1099-A
• Purgatory Dallas

• Related Blogs on 1099-c
• Recent Arizona Court of Appeals Decision regarding 1099c debt …
• Banking: The Loan Charge Off, and the 1099-C « Newvienna's Blog
• Credit card debt and 1099c forms. Once you file taxes will your …

No related posts.

Related posts brought to you by Yet Another Related Posts Plugin.