Tax consequences of a short sale

Mortgage and Lending with Homeland Financial

taxDid you or someone you know just receive a 1099-C form from their previous mortgage company after a short sale? If you owed more on your house than what you sold it for through a short sale, the excess amount of the loan balance above the sales price may be forgiven by the lender. The forgiven amount is considered cancellation of debt (COD) income for federal income tax purposes. As an example: Your current mortgage balance is $200k. You execute a short sale and sell the house for $150k. You still owe the bank $50k. This $50k may be forgiven by your lender. If it is forgiven, the forgiven amount is considered income for your tax filing purposes. But there is some good news.

The Mortgage Debt Relief Act of 2007 allows taxpayers to exclude the income from the discharge of debt as long as the property sold in the short sale was their primary residence. The act applies to debt forgiven in calendar years 2007 through end of 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). For additional info, please visit the IRS website: Ten facts for Mortgage Debt Forgiveness.

You still have to report the forgiven debt as income on your personal tax return but you must file IRS form 982 to exclude this as part of your income. As always, consult a certified tax professional to seek advise for your particular situation.




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go to & get 20 Listing Appointments per month
Real Estate Faster - Los Angeles, CA

Thanks for sharing, good info to know!

Jan 05, 2012 01:26 PM #1
Teresa & Lee Fowler
Keller Williams Realty - Hillsborough, NC
Connecting Buyers & Sellers

Good advice.  Thanks for sharing.

Jan 05, 2012 01:29 PM #2
Bill Reddington
Re/max Southern Realty - Destin, FL
Destin Florida Real Estate

I am sure this will apply to a great number of people.  Thanks for sharing the info.

Jan 05, 2012 01:36 PM #3
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Christian -- it is good to have this information at our fingertips, in such a succinct manner.  Thank you.

Jan 05, 2012 01:50 PM #4
Christian Pak
Homeland Financial - Atlanta, GA

Great to see that this information was useful. I hope that this information and the linked resources will provide help to those who can benefit.

Thank you all.

Jan 05, 2012 02:47 PM #5
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Christian Pak

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