A question we often get from our Short Sale Sellers is: What are the tax consequences of doing a short sale? We come from the school of "know what you don't know and refer to someone who does"....and don't hand out legal advice...suggest tax or accounting methods...however.....what we do suggest is that sellers who have done a short sale use a professional to do their tax returns if they have not done that in the past.
Sometimes...not always....our sellers get a 1099 form from the lender or lenders who approved their short sale in the amount of the deficiency that they were not charged when the sale closed. We give our short sale sellers as much information as we can when we list the home inclusive of handouts, web links, resources from other sources. It is, at best, a confusing time of life with lots of activity, decisions to make, a move to prepare for....and sometimes what we said, what we gave them and links we mailed, get lost in the fray of the experience. Months later...the 1099 arrives and we get emails and calls....how do I prepare taxes or what do I do with this 1099...I don't remember that you said we would pay taxes...
First.....we have a list of accounting experts throughout the counties that we cover that we suggest our sellers use to prepare their return and offer any other advice that may be needed concerning their tax situation. Next....we have learned that many accounting people...because short sales are not as common here as they are other places, are not aware of the federal government's 982 form. This form basically is a verification that, at the time the short sale was closed, the seller was insolvent. As a result, for the time that the government deems this form can be included with tax returns, it relieves the tax payer/short sale seller from paying tax on the amount of the deficiency.
Know what you don't know...we don't do taxes and hope accountants don't do short sales...we do recommend that the sellers/taxpayers take a copy of this form with them to their tax preparer....just in case....they don't know.
If you know anyone, anywhere, who is unable to pay their mortgage..please have them give us a call....we are happy to refer them to a professional from our nationwide network who can help them make an informed decision on how best to handle their situation.