This makes me crazy. A homeowner is in trouble, yet wants to do the right thing and attempt a short sale rather than just walk away. So what does the IRS do? Possibly count the amount forgiven as income. Aaaaargh! If the homowner just lets the lender foreclose then the IRS isn't interested. What is wrong with this picture?
by Dave Cherry - Dec. 26, 2010 06:10 PM
Question: My daughter executed a "short sale" of her home in 2010. What are the tax ramifications?
- Barry Davis, Apache Junction
Answer: In a "short sale," the IRS would most likely consider the difference between what the house sold for and what she owed on it as income to her in 2010. This applies when the lender forgives the debt entirely and gives up any further rights to collect it. In this case, the lender would most likely send her a 1099-C showing the difference as income, and your daughter could owe tax on it. Your daughter should check IRS form #982 to see if she qualifies for one of the many exemptions available. If she does qualify, the difference may not be considered income. Conversely, in a foreclosure the difference is most often not considered income to the homeowner.Read more: http://www.azcentral.com/arizonarepublic/business/articles/2010/12/26/20101226tax-cherry1227.html#ixzz19KWc6Xxo
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