When we meet with our clients and discuss the short sale process with them, common questions that come up are "What are the tax consequences of a short sale?" or "I've heard I might receive a 1099 from the bank for the difference".
In most cases you probably will not, but we advise you to consult with your real estate attorney and/or CPA. In December 2007 the government instituted the Mortgage Forgiveness Debt Relief Act which allows homeowners who use the property as their principal residence to generally not have any tax liability. There are some exceptions if you have done a Cash Out refinance on that property and did not use the funds to improve the property. An important thing to remember is that if you do have some potential tax liability, that liability will probably be worse if the property goes into foreclosure because the bank will lose more money. Many people make this mistake and think that if they let the property go into foreclosure, they are released of all liability. This is incorrect. We advise you to consult with your real estate attorney and/or CPA to see your tax potential tax liability. You can read more about the Mortgage Forgiveness Debt Relief Act on the IRS website.
For more information please visit our website.
Geoffrey & Gabe
OC Short Sale Guys
(949) 287-4483
http://www.ocshortsaleguys.com/
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