#7 – Filing Your Foreclosure/Short Sale Taxes
This is the seventh tip in our series 7 Things You Should Know About the Tax Consequences of Debt Forgiveness which is also available as a free eBook from your Fort Myers Accounting Firm.
It is possible for you to receive multiple tax forms (1099A & 1099C) in the same year. This is based on a variety of scenarios, depending on how you file your 1040 in the case of foreclosure taxes or short sale taxes.
Before we proceed with filing your 1040, let’s take a moment to better define a Short Sale. Short sales on real estate are often a misunderstood process and a twist of terms. The term is borrowed from the securities industries, where it is used when a taxpayer sells a security they do not own in hopes of buying it later at a cheaper price.
This is not the case with a real estate “short sale”. In this case, a taxpayer owns their property and is trying to sell for less than what is owed to a borrower. This process is complex and needs to be handled by a real estate professional with the knowledge and experience with the property and working with borrowers.
It is very important for you, to consider these items before going through with a short sale:
- Is the mortgage non-recourse or recourse? (review taxpayers state law)
- What is the lender’s position regarding going after the taxpayers other assets?
- Is the property your qualified principle residence or investment property?
To be a successful transaction the taxpayer needs to consider the above to avoid unexpected short sale taxes or foreclosure taxes due on forgiven debt or a borrower collecting the full amount of the debt secured by the property.
As described in some of the previous tips, the difference of cost in a Short Sale or the debt forgiveness of Foreclosure can be viewed as “income.” Therefore, short sale taxes or Foreclosure taxes can hit homeowners very hard if they are not prepared, or have not filed the proper forms for exemption.
If you have further questions about foreclosure & short sale taxes and how they can affect your income taxes, please contact us online, call (239) 384-9688, or download our FREE eBook 7 Things You Should Know About the Tax Consequences of Debt Forgiveness. When it’s time for us to meet, here is a good way for you to prepare before meeting with your tax planner.
-Mark
——–
This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.
LEGAL NOTICE AND DISCLAIMER: The information within this post is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.
