We all know that SHORT SALES is one of the hottest real estate topics currently. One of the issues that is stressed in various SHORT SALE seminars has been the issue of the forgiven debt being treated as ordinary taxable income.
This is not necessarily the case. Generally, a lender will only forgive the debt in a SHORT SALE when the debtor is insolvent. Otherwise, the lender may typically demand a promissory note from the debtor. This allows the lender to list the note as a booked asset in hopes that they will collect on the note. However, in the instances wherein the debtor is insolvent the IRS may provide relief from the debt forgiveness being considered taxable. IRS DEBT FORGIVNESS GUIDELINES
Recommend that any SHORT SALE debtor speak with a highly qualified tax professional in order to provide the correct evaluation.
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