What are the tax implications for a seller with a short sale?

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What are the tax implications for a seller with a short sale?

The house was a primary resident. The bank said they would complete form 1099 and send to IRS. The house was refinanced at some point and also has equity line of credit on it with another lender.

Asked on December 8, 2011 under Real Estate Law, Florida

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

Good question. In the event of a short sale where the lender ends up taking less on the loan secured by the property sold where the seller essentially gets forgiveness of debt on the loan through the sale, the seller can have possible tax issues where the forgiven debt could be deemed income for tax purposes.

If you are in such a situation, I suggest that you consult with a real estate attorney who also does tax law for a further detailed opinion as to the possible tax consequences to you in the event of a short sale and the forgiveness of debt owed on the secured loan.


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