Most of the middle class families have experienced the affects of economic downturn in one way or the other. The number of short sales have increased significantly in the past 5 to 10 years. Placing the house on the market as a short sale is the hardest task for any house owner not because of the complicated process but because of the emotional breakdown and tough financial situation of the owner. In my long career of working as a Temecula short sale agent, I have witnessed cases where short sales seems to be the only option left with the house owners. But most of the house owners are unaware of the tax implications and legal issues involved in the short sale process.
There are some important tax changes that you should be aware of after closing a foreclosure or short sale successfully. I am going to discuss some important tax events that should be considered by every employer.
•1099-C: 1099 form is used to report the deficiency balance while filling your tax returns. Deficiency balance is the difference between the amount the homewoner owes and the real value that seller receives after a short sale or foreclosure. If this amount is accepted as payment in full then it will be considered as taxable by IRS guidelines.
•Audit: Keep in mind that failure in reporting a short sale or foreclosure may lead you into serious tax consequences and even an audit. An audit is possible if the seller has recorded the event while you didn’t.
•Insolvency: In case the owner is insolvent and that’s the reason why lender accepted the short sale price as payment in full then you are automatically exempted from tax forgiveness debt.
Even if you are aware of the tax consequences of a short sale or foreclosure, as an experienced Temecula short sale agent I would advice getting legal guidance from an attorney with specialization in dealing with such cases. It will ensure that you will not face any serious tax consequences after the closure of the deal. Moreover having a skilled attorney by your side will always help you in dealing with any issues whatsoever.
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