Who owes taxes after a short sale on a home awarded in a divorce?

Hey guys,

I got a divorce a year and a half ago, and my ex-wife got the house. She was unable to pay for it, and I anticipated this during mediation when she was arguing for possession of the house. So, I agreed to let her have the house, and had the paperwork written up to say that she was responsible for all debts incurred at or pertaining to the residence as of the date of her signature. It didn't take her long to fall behind on the mortgage. She ended up having to short sell to keep from losing the house altogether. The bank forgave the difference in the selling price and what she owed. That said, my name was still on the mortgage at the time of the short sale. Now, tax season is right around the corner, and I don't know what this means for my taxes. Since she was the legal owner of the house, and because she reaps the tax benefits for any interest paid before selling, is she not wholly responsible for any taxes that are owed on the amount of debt the bank forgave? I'm scared to make an assumption like that, but I can't find any clear answers online. Any one who can offer some help or clarification would be greatly appreciated.

5 Answers

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  • Ti
    Lv 7
    6 years ago
    Favorite Answer

    You are WRONG. The mortgage company was not party to your divorce, so unless the mortgage was refinanced in her name only, you was as much responsible for it as she is.

    1. You were both legal owners of the house since the mortgage had not been refinanced into her name.

    2. You may receive the 1099 forgiveness of debt form from the bank. When and if you do, then it is time to see a lawyer to get this mess straightened out.

    If the IRS does bill you, you have the right, per your divorce decree, to sue you ex for the amount that she owes you.

  • 6 years ago

    You might be exempt from paying any tax per the federal Mortgage Forgiveness Debt Relief Act. Talk to an accountant.

  • dog ma
    Lv 7
    6 years ago

    You do, since your name was on the mortgage. The IRS and mortgage company do not care if you got a divorce, your name was still on the mortgage. Your credit has also taken a huge hit.

  • 6 years ago

    To the IRS, you are as responsible for the debt as she is.

    But from the divorce standpoint, if you pay the IRS for the debt, she is responsible for reimbursing you.

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  • 6 years ago

    Thanks, Hunch. Not what I wanted to hear, but thanks. LOL If she files her taxes and claims it on them, would me claiming the same not be double taxing the same money? Can she just claim the whole difference without it having to be split between us?

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