I bought a house in April of this year and my Fiance short saled his home this week. We wanted to get married this year but I'm worried about taxes. Will this send up any type of red flag to the IRS will his negitive credit affect my perfect credit in any way?
I will assume you are not on the loan of your fiance's house. Therefore, this will only affect his credit. If this was his principal residence, he probably will not have to pay any taxes on the short-sale and resulting income from debt relief on the property. I just cannot say so with certainty without more facts.
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Real Estate Attorney
The house you bought is your separate property and will not show up on his credit or IRS returns as long as it stays separate and you file separate.
Similarly his credit will not impact yours as long as you do not open joint accounts. If his short sale was done properly there should be no tax consequences to him and no liability for any deficiency.
Have you and he discussed ownership of the house you bought in April? Even if you never put it in his name, payments made for mortgage, repairs, insurance, taxes, etc. will give him an interest in the house if those payments are made with community funds.
Think about a prenup if you want house to remain separate.
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Estate Planning Attorney
I agree with the prior posts - the short sale should only impact your future husband's credit, and I would definitely consider a premarital agreement so as to protect the house you previously purchased.
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First of all and most importantly, setting aside any credit issues, will your fiance owe tax. There are a number of ways to eliminate the tax, you and your fiancee need to determine whether he owes tax and if so, whether he has the ability to pay it. If he doesn't, and you do NOT get a pre-nuptial agreement, then the IRS can go after your share of community property to collect his tax debt in California. You really should consult a tax practitioner to ensure that you are both aware of all the consequences aside from the adverse credit issues.
This should not be relied upon as legal advice and you are advise to seek your own attorney to obtain said advice. You cannot rely upon this to avoid any penalties asserted in any tax audit.