QUESTION
What is the income taxes for short sale versus foreclosure?
Asked on Nov 17th, 2012 on Taxation - Colorado
More details to this question:
If I short sale my house and the bank forgives the debt, am I required to still pay the taxes on the amount forgiven? Also, if I claim bankruptcy and let my house go into foreclosure, am I required to pay income taxes on any part of the debt?
3 ANSWERS
If you do a short sale in 2012, it is possible that some or all of the debt forgiven will not be taxable. The rules may change for 2013. I can not give a more specific answer without knowing more specific facts about your situation. I am not familiar with bankruptcy law, so I can not tell you what happens if you claim bankruptcy and let the house go into foreclosure.
Answered on Nov 21st, 2012 at 4:23 AM
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Paul A. Nidich Attorney at Law
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Yes. The federal tax code considers all forgiveness of debt, whether voluntarily involuntarily forgiven as taxable income.
Answered on Nov 20th, 2012 at 12:56 PM
You do not have to pay federal income tax on a mortgage debt that has been forgiven, as long as the house is your primary residence.
Answered on Nov 20th, 2012 at 12:51 PM