Tax Implications

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.

  1. Is the dwelling owner occupied? Or is it a rental?
  2. How long has the home been owned and lived in by the owner(s)?
  3. Is the loan the original purchase product, or a refinance?
  4. Is the taxpayer insolvent?
  5. 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. She is offering our clients a reduced flat consultation rate of 85 dollars to answer all of your tax questions regarding your potential short sale.