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Are there tax ramifications to a Colorado Springs short sale?
Taxes due on Short Sales?
As part of listing short sale properties, a large portion of what I do is help educate sellers who are in financial difficulty. I’m often asked about the tax implications of the debt forgiveness on a short sale or foreclosure. I hope this article will answer some of these questions.
I pride myself on thoroughly researching any article I write, and this article is no exception. Having said that, I’m not an accountant or CPA, and I urge you to seek professional tax advice on the tax ramifications of a Short-Sale and Foreclosure.
- Colorado Springs Homes, 4 things to know about a short sale - Part I of Short Sales Series
- Avoid Foreclosure, Know Your Options - Part II of Short Sales Series
- Colorado Springs Home Foreclosures – 11 benefits of a short sale - Part III of Short Sales Series
- The final step in the Colorado Foreclosure process – Part IV of Short Sale Series
- How long does it take to do Colorado Springs Short Sale? – Part V in Short Sale Series
What is the Mortgage Forgiveness Act?
The Mortgage Forgiveness Debt Relief Act of 2007 was passed for taxpayers who lose their homes in foreclosure. (According to the information on the IRS Web Site: “Homeowners whose mortgage debt was partly or entirely forgiven may be able to claim special tax relief by filling out newly-revised Form 982 and attaching it to their 2008 federal income tax return.”)
The law applies to debt forgiven in 2007, 2008 or 2009 and it’s important to note that debt forgiven on second homes and rental property does not qualify. There is a very informative easy to read page on the IRS Web site that explains most of the questions about this Act. If you have more questions, I encourage you to seek professional tax advice and/or contact the IRS.
Will I need to declare the income on my Tax Return?
A Borrower whose debt is reduced or eliminated as part of a short sale will receive a year-end statement called a Form 1099-C from their lender(s), and the C stands for Cancellation of Debt. The thing that many 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.” The A stands for Acquisition or Abandonment of Secured Property.
One more thing you should know is that in many cases, the amount of the loss at a Foreclosure is greater than that of a Short Sale. If you are going to receive a 1099 in either case, it may be in your best interest to do a short sale instead of allowing your property to be sold for less at a Foreclosure or as an REO (Real Estate Owned or Bank Owned Property).
The above information is to be used as a general guide and is by no means to be used as legal or tax advice.
If you enjoyed reading this article, why not Kathy (719-287-1049) KTorline@msn.com
Great articles & Nice a site