What's the deal with taxes on Real Estate foreclosures or Short Sales?

This is one of the dirty little secrets that most  distressed home sellers don't understand.   My understanding is if the property goes through the foreclosure process in Washington State.  You will not receive a 1099 meaning you will not have tax consequences.   The Killer is you end up with the foreclosure on your record which last almost a decade.  A foreclosure is something that most likely will affect what type of interest rates you will be able to get from your lenders going forward. As your goal should be to get a fresh start this isn't always your best option. Every time you apply for a loan you might have to mark the little box that says you have had a foreclosure which will ultimately give you a higher interest rate which costs you more money.

In most cases if you do a SHORT SALE your accountant will be able to get you out of any 1099 or Tax consequences. My understanding is that you  will receive  a 1099.

 I have some great opinions, But follow this link to some free self help links:  RealMitigation Homeowner Help Links  (What the IRS has to say about mortgage forgiveness. VA links, Attorney General, scam alerts, Countrywide Settlement, Loan Modification and more.) 

The  Mortgage Forgiveness Debt Relief Act of 2007 will get most of you out of a 1099 in most cases. If this Act will not help you,  and you are  insolvent you will need IRS Form 982 and a good accountant.  Where you could be in trouble is if you have assets,  the property is a rental or you had a money back refinance or a HELOC and have taken money out above your original purchase price.  I have heard differing view points from various experts in the distressed and Short Sale arena on this issue, so I will encourage you to find the information out for yourself.  In the future I will be blogging about Loan Modifications, Forbearance agreements,  what happens to the defaulting loan balance on a Short Sale or Foreclosure.  I always recommend that you consult with a Real Estate attorney and a good accountant.

You can reach Mike Karsten through RealMitigation.com