Many owners (particularly investors) do not realize that they may face tax consequences from the IRS after the short sale of their home. Unfortunately, if you face these, you face them regardless of foreclosure or short sale. Every situation is different and you absolutely must work with a CPA or tax attorney. This could mean thousands in saved dollars. Also, because of these tax consequences, some feel the need to run into bankruptcy. Again, only consultation with an attorney will aid you in this, but please, make sure to discuss this matter with a CPA, especially if tax liability is your primary concern. We will be happy to recommend local CPAs who specialize in short sales if you need assistance.
Just one example of why you need a CPA. Suppose you pursue a short sale and are being forgiven $100,000. The IRS now considers that $100,000 that was "forgiven" by the lender as "debt relief" income. Thus, there is a good chance that your lender will send you a 1099 in the amount of $100,000. Even if they do not, by law, you need to claim this as income.
Well, now I am sure you are saying, I do not want to pay, nor have the money to pay, income tax on $100,000. Again, this is why meeting with a CPA is indispensable. There are many forgiveness laws and other scenarios that exist in the tax world that I am not even going to touch because I am not a CPA. However, please be aware that they do exist and thus, talk to the right professionals to see which ones apply to you and how.
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