When a Short Sale is done on your property, to avoid foreclosure, a part of the mortgage debt is is not applied to the sale. Thus, the sale that the Bank accepts is Short of the outstanding note balance. The Internal Revenue Service by law requires knowledge of that short amount.
The Mortgage Forgiveness Debt Relief Act of 2007 was enacted on December 20, 2007. When you have money that you owe, forgiven or cancelled our government has long recognized that as taxable income. Take a look at http://www.irs.gov/individuals/article/0,,id=179414,00.html. Notice that there is no straight forward yes or no answer provided for whether tax is due. This means that I as your Realtor in these situations will refer you to the professionals such as CPA, or attorney to get the answer you need.
One of the forms that I need to obtain for you from the Bank is the Form 1099-C, Cancellation of Debt. The amount forgiven will be in Box 2. This amount is then entered on lines 2 and 10b on Form 982. Generally the amount of the note that applies to the house is forgiven. Any amount financed as equity to pay off credit cards, car loans, etc could be taxable.
It is never too soon to discuss and gather information using me as your Families Realtor. Call Me.
A few of the services provided are available on one of my web sites: listings, popular searches, search the MLS, or investment.
Contact: Dwight Puntigan - Century 21 Luetkenhaus - 636-219-6242
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