Are there TAX consequences of doing a short sale vs. foreclosure?
Every situation is different for each person, so it is important to consult with a tax professional, CPA, tax attorney or someone who is qualified to make this determination for you. But here is some information to get you started, after which you should confer with a CPA to see if any of this applies to you. When you do a short sale or a foreclosure the lender is allowed to write off the loss and pass it on to you as income in the form of a 1099-C. The IRS considers this income for you and is taxable. For example, you borrowed $200,000 to purchase a home, but only were able to repay $150,000 in the short sale, you will receive a 1099-C for that $50,000 and possibly taxed on that according to your tax bracket. Federal Taxes: The Home Mortgage Forgiveness Debt Relief Act of 2007 states if the property is your primary residence and the debt discharged was from your original “purchase money” loan, and then you will not have to pay the taxes for that amount. Further, if you did refinance a
