Hi there, I’m Shawn Polston with Keller Williams Southern Arizona and TucsonShortSaleNegotiator.com. I wanted to talk to you today about a topic that gets brought up a lot. It revolves around the question of taxes. I’m going to give a quick explanation of the tax ramifications that occur in a short sale as well as in a foreclosure or a deed in lieu also. When your lender does a short sale, a lot of times there is a cancellation of debt where they send you a 1099C. After a deed in lieu of foreclosure and a foreclosure, they will send you one as well. This is a requirement any time there is more than $600 worth of cancellation of debt. Whoever forgave that debt is required by the IRS to inform them. The IRS looks at cancellation of debt as income to you.
The good news where it involves short sales, in most cases the vast majority of our clients have some way out of the tax liability associated with that. The Mortgage Debt Forgiveness Act of 2007 is going to be around until the end of 2013. There is also a provision within the IRS tax code related to insolvency and this means at the time of that cancellation of debt where your debt is greater than your assets. I can tell you there is no expiration currently on this. There is also the question of is it a capital loss? The person who you need to speak to about this specific situation is a CPA. If you don’t have a CPA, pick up the phone and give us a call. We would be happy to point you towards someone. Also, IRS.gov is an excellent reference. We are looking forward to helping you and answering any questions you have. Give us a call today.