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I was denied a modification by my lender. I was preferred to do a short sale. If I sell the house on a short sale, will I owe the IRS taxes on the sale? If yes, can it be reduced or forgiven?
4 ANSWERS
This is an area that has been heavily explored for the last five years. In general, the answer is yes you do have to pay income tax on the relief of indebtedness. However, there are some exceptions that you may fit.
Answered on Aug 28th, 2015 at 5:03 PM
The amount of the mortgage loan that the lender writes off will be taxable income, although the lender might not write off any portion of the loan, so there won't be any taxable income. If the lender doesn't write off any portion of the loan, you will still owe the money and the lender might sue you for it.
Answered on Aug 28th, 2015 at 8:34 AM
Commercial & Bankruptcy Law Attorney serving Powell, OH
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Ronald K. Nims
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There are two ways you can owe taxes on a short sale. 1st, if the house sold for more than you paid for it. Then you have a capital gain on the house and you'll have to pay the tax on your gain. 2nd, if the bank forgives part of the loan, then you have "forgiveness of indebtedness" income. You don't have to pay any tax if it the debt was the mortgage on your residence, you were insolvent (your assets are less than your debts) at the time and you don't have to pay any tax if you're in bankruptcy. Otherwise, you'll have a tax bill.
Answered on Aug 27th, 2015 at 10:41 PM
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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Yes, they consider the debt forgiven to be income to you unless you meet certain conditions. You should see a CPA or attorney to determine if you qualify for any relief from the burden.
Answered on Aug 27th, 2015 at 5:02 PM