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Are There Tax Implications With Short Selling?

When short-selling your home, one of the key considerations is the tax implications. Taxes vary from state to state, though there are also general federal guidelines to go by. There are differences for people living in their short-sale home (primary residence) and those that have it as a secondary home.

First, let's look at a primary residence. The Mortgage Debt Relief Act of 2007 usually applies here, excluding income from the discharged debt. This applies through 2012 for up to $2 million of forgiven debt ($1 million if married but filing separately). The IRS uses Form 1099-C when filing when this situation comes up.

Now, if this is not your primary residences, you'll be paying taxes on income from the forgiven debt. This may seem unfair, but think about it from a practical perspective -- if it's not your primary residence, then the government still sees you as capable of paying your mortgage and having some measure of living. The secondary residence is seen as a luxury, thus you'll have to pay taxes on it.

States can have different tax laws regarding short sales. The absolute best, safest thing to do is to consult a tax attorney or a CPA regarding your local implications. The short answer to the post's title is yes, there are tax implications on both a state and federal level. Be sure you take the safe route and consult a professional on both areas of tax implications.

If you need help finding a tax attorney, or CPA contact me and I'd be happy to see if we can find the best fit for you.

Israel Gonzalez RDCPro, CDPE

Real Estate Broker


www.bestreohomes.com  www.nicereohomes.com


The views published here are the opinions of the writer and are not a substitute for legal counsel.


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