What is IRS form 982 after successful short sale transaction?
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What is IRS form 982 after successful short sale transaction?
Asked on June 15, 2009 under Real Estate Law, Florida
Answers:
M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney
Answered 14 years ago | Contributor
You could be in for a large tax bill if you utilize a short sale, foreclosure, or deed in lieu of foreclosure. The amount of debt that is “forgiven” by your lender may be viewed as income for that tax year by the IRS.
Is there a way to avoid paying that tax? Possibly. IRS form 982 says, “Generally, the amount by which you benefit from the discharge of indebtedness is included in your gross income. However, under certain circumstances described in section 108, you may exclude the amount of discharged indebtedness from your gross income”. The specific instructions are contained in section 108 of the Internal Revenue Code.
One of the “circumstances” they are referring to is that if you are insolvent before you conduct a short sale then you may be able to “exclude” the forgiven indebtedness (the amount the lender forgave on the loan) from being added to your gross income for that year.
Bottom line - you need to be aware of the potential tax liabilities involved in a short sale. You shpuld consult further with a tax professional on this.
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