What are the IRS tax implications of a short sale and a foreclosure?
If you get $50,000 of debt relief from a short sale (lender accepts $20k on a $70k note) is there a tax implication? How is that different from just forfitting the property through foreclosure?
Please don't answer if you are just guessing - I can do that on my own ;-)
- 1 decade agoFavorite Answer
The bank should issue a 1099 for debt relief of $50,000--and that amount can be taxable to the person who owed the debt.
If the home was a business property, there may be a loss on the home to offset part of the gain.
Additionally, if the taxpayer is bankrupt or insolvent, the debt relief may be excludable from income. In broad terms, to be insolvent, the taxpayer's liabilities must exceed their assets.
Unless the person is willing to simply include the $50,000 on his tax return, further research or hiring professional help is in order.
- WealthBuilderLv 41 decade ago
The person who shorted the bank gets a 1099-C Cancellation of Debt. It is taxable income, UNLESS THE recipient is insolvent. If partially insolvent, then only the part of the debt less the insolvent portion is taxable.
So if someone WALKED on a note, but had assets greater than debts (including the house and original note), then someone gets a tax surprise!
- Anonymous1 decade ago
There is no difference check out this link from irs.gov
it has the information and includes info concerning if you were in bankruptcy. For further information call 1-800-829-1040Source(s): Internal Revenue Service Publications
- Anonymous4 years ago
i've got had human beings declare to me that a financial disaster by ability of a few ability looks larger than a deed in lieu of foreclosure on your credit, although once you do no longer look paying for one greater abode for 10-15 years, then I doubt it will make lots difference as none of it could be on your credit at that element. i'm hoping this disadvantage has given you a attention that in case you purchase investment property you will ought to isolate each and every property in an LLC or distinctive limited legal duty entity so it does no longer have an effect on your different property. anyhow solutions to your questions: a million. for people who report financial disaster, this relies upon upon for people who renounce the homes previous to submitting, in case you do, all the financial disaster will do is discharge some thing deficiency you additionally can owe, and likewise you purely checklist that stated property became forfeited on the assertion of commercial Affairs. if youin case you although very own the valuables while you report, you in reality ought to component out on your assertion of intentions which you will be able to desire to offer up the homes. 2. once you're surrendering the homes, i do no longer assume it concerns on the timing of your submitting. till you would be interior the back of on the mandatory abode, yet then i could recommend submitting a financial disaster 13 to capture up, because of the fact the internal maximum loan corporation isn't susceptible to make the value plan to compensate for arrears very much less costly from what i've got got here upon. i believe very own loan purposes additionally ask in case you have filed financial disaster, so i'm no longer sure, although i've got had a shopper formerly than that reported they had to report to avert the foreclosure. i became forced as to what they meant because of the fact the sale became as quickly as the next day which meant the judgment of foreclosure already got here approximately. i'm no counseled on credit stories, although in my eyes, as quickly as the judgment has occurred, it is foreclosed, although you do have time to redeem after that, so as which would be why the abode has to go by ability of way of the sale attitude formerly this is seen foreclosed upon. the two that or my shopper became as quickly as incorrect as to what foreclosed upon way.