Short Sale--Transfering Debt from the Bank to the IRS?

Yesterday we had a Short Sales and Bankruptcy Attorney on our TV show. We discussed the 1099-C that banks are sending to clients when the home sell short. Suppose that you owe $400,000 on a home and it short sales for $200,000. The bank will then send you a 1099-C for $200,000 which is counted as regular income. Your tax bracket will determine the amount of taxes due on the $200,000 but it could be $60,000 or more.

If you are a Realtor you really should ask your client to talk to the tax attorney about the short sale implications. It might also be a good time to talk about bankruptcy or proving insolvency. As I understand it this 1099-C can be eliminated with proof of insolvency.

It is too risky to take the chance without expert advice. If you are doing a short sale or in any type of financial emergency please talk to a competent tax attorney.

Doug Jones
Mortgage Magic 286668