Tax Implications and Real Estate
The tax implications of selling your property that has a balance owed that exceeds current market value can result in taxation. This commonly being due to the “cancellation of debt” (1099-C) owner(s) would receive from a successful short sale if the loan was a straight purchase loan. If you refinanced your original purchase loan you may have other tax implications.
There are a number of rules that can alleviate most, or all, of the tax consequences. The following are some of the issues that can make a difference on whether your loss is taxable or not.
- Is the dwelling owner occupied? Or is it a rental?
- How long has the home been owned and lived in by the owner(s)?
- Is the loan the original purchase product, or a refinance?
- Is the taxpayer insolvent?
- How many people are on the title as owners?
There are many variables to look at when a short sale is being considered. Contact your tax professional, or our trusted tax advisor Jean Grabowski, EA for further consultation at (626) 814-3024