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Are There Any Tax Ramifications?

There may be tax ramifications to a Short Sale but this is not just a simple yes or no question. You may have heard, “Don’t do a short sale because you will get a 1099 and have to pay taxes on the difference between what you owed on your home and what you sold it for or the amount the bank wrote off.” This may be true, but this is not the whole story… If you borrow money from a lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is normally reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. The thing that most people don’t know or don’t tell you is that with a Foreclosure, you will also get a 1099. In the case of a Foreclosure the 1099 is called a “1099-A.” So what’s thetax man home difference between a 1099-C and a 1099-A? The ‘C’ stands for “Cancellation of Debt” and the ‘A’ stands for “Acquisition or Abandonment of Secured Property”. The differences are much more than you get the ‘C’ with a Short Sale and the ‘A’ with a Foreclosure. It is important to know that while there are many differences, the tax consequences for the ‘C’ and the ‘A’ are the same. You may not even be required to pay taxes on the ‘income’ as shown on the 1099-C, but don’t just assume that you won’t have to pay. While we are very good at successfully closing Short Sales, we are not tax experts.

Before making your final decision, first consult a CPA or Tax Preparer.

For many years, The Mortgage Debt Relief Act of 2007 provided relief to many, many homeowners, however this expired or “sunset” in 2013, however all hope is not lost!  There are other exclusions to help home owners short sale their primary residence and avoid the tax consequences.  The largest safeguard to most people looking to short sale their home in Las Vegas is in this link about the Insolvency exclusion in the IRS code. For answer to other questions about debt cancellation, see this link in regards to your home foreclosure. In addition, other debt related questions are answered about debt forgiveness here,

To read about exclusions in the tax code in regards to short sales and foreclosures, see this link about “What Ifs” answered by the IRS. For more information on the Mortgage Debt Relief Act, how it works, who it applies to, and more, please read more directly from the IRS website by clicking here.

 

I WOULD LIKE TO TALK TO A SHORT SALE PROFESSIONAL

 

For more specific questions not answered here or in our Short Sale FAQ’s, please email Five Star Real Estate at Contact@FiveStarVegasHomes.com or call us today at 702.852.2852.

Five Start Real Estate and Property Management

FIVE STAR REAL ESTATE & PROPERTY MANAGEMENT

5285 S Durango Dr #1
Las Vegas, NV 89113

Office: (702) 852-2852
Toll Free: (877) 659-3459
Fax: (702) 947-4755

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Equal Housing Opportunity - Las Vegas, NV

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Broker – Matthew Kammeyer

Matt Kammeyer

currently serves as a trusted advisor to many families and businesses across Southern Nevada, which has been his home for 35 years.  In addition to acting as Corporate Broker for Five Star Real Estate Property Management, Matthew is actively involved with the CDPE (Certified Distressed Property Expert) organization, is a CCIM designee (Certified Commercial Investment Membership), and a veteran member of the National State and Local Association of REALTORS. 

Matthew is also the Permitted Property Manager and Permitted Business Broker for Five Star Real Estate.  With a BSBA in Real Estate from the Finance Department at UNLV plus over 10 years of real estate brokering experience, Matthew has extensive knowledge and experience in his local market.  He has been heavily involved in real estate since 1999. Continue reading...

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