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What is the difference between a Short Sale and Foreclosure in terms of tax liability?

April 26, 2017difference foreclosure liability sale short tax terms

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What is the difference between a Short Sale and Foreclosure in terms of tax liability?

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The tax liability on a short sale is the same as a foreclosure. If the difference between what is owed and what the house sells for is charged off by the bank and the borrower is not protected under the Mortgage Forgiveness Debt Relief Act, the borrower could be held liable for federal and state taxes. The Mortgage Forgiveness Debt Relief Act is summarized in the YouWalkAway.com Strategic Default Protection Kit. This Act forgives the federal tax responsibility for the difference between what is owed and the amount the foreclosed home is sold at auction. This law was created to protect homeowners who are foreclosing on principal residences only and who have never refinanced by pulling out a home equity line of credit. Certain YouWalkAway.com Memberships provide access to schedule a consultation with a CPA, to assist in determining whether or not you would be liable for any taxes next year.