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Will I have taxes consequences if I do a short sale?

Maybe. Everyone needs to consult a competent tax consultant. The IRS requires that all debt forgiven by a lender/bank be reported on form 1099 as forgiveness of debt and treated as income. Meaning, if they forgive 50K in a short sale you are deemed to have 50K more income for tax purposes that year even though you did not make this money. However, that being said, many people short sale properties will no tax liability. There are a couple exceptions to the tax that many of those going through short sales qualify for making the tax impact nonexistent. First, forgiveness of debt of first mortgage on the sellers primary residence is often excluded meaning no tax is owed. The forgiveness of second mortgage is more complicated yet still possible under this law so it is advisable to seek a short sale lawyer. The law is Mortgage Forgiveness Debt Relief Act of 2007 and is set to expire in 2013 unless renewed. Second, there is the insolvency test and tax avoidance under the Internal Revenue Code. Many people avoid the tax liability on the mortgage debt under this provision. Basically, the rule is that if at the time of the short sale or other settlement the seller’s assets are less than liabilities (ie more debt than free and clear assets) the seller is insolvent for tax purposes and is not liable for the taxes owed on the forgiven debt. In many cases the seller avoids tax liability.

Contact Tiller & Rivera Law P.A. today to discuss your short sale options with West Palm Beach short sale lawyer and real estate attorney.
Main Office: West Palm Beach Satellite Offices: Stuart Palm Beach Gardens Fort Lauderdale


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