deed in liew of foreclosure: FAQ's on Taxes related to Real Estate - 10/29/07 12:22 PM
TAXATION OF SHORT SALES Q 9.  What are the tax implications of a short sale?
A A short sale where the lender agrees to reduce some or all of the outstanding debt may give rise to forgiveness of debt income (also called "cancellation of debt" income).  The amount of the debt that the lender agrees to write off is treated as ordinary income.  The taxpayer will generally receive a 1099 tax form from the lender in the amount of the debt reduction. This rule applies whether or not the underlying debt is recourse or nonrecourse.** (See Rev. Rul. 82-202, 1982 - 2 … (1 comments)

 

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