What are the tax implications if I short sale my house that's currently in foreclosure? Any tax implications on 2013 foreclosre?

Asked over 1 year ago - Oakland, CA

Primary residence is currently in foreclosure. BK7 was discharged in 2010. A realtor suggested a short sale and negotiating relocation allowance from BofA. If the house is sold via short sale beyond Dec 2012, what are the tax implications? Is it viewed as taxable income by IRS? Foreclosure's Trustee Sale is Feb 2013, any tax implications? Do I get taxed either way?

When's the best time to move the house? If I move now and something happens to the house, what is my liability?

Thanks in advance.

Attorney answers (3)

  1. Kenny Kean Tan

    Contributor Level 15

    11

    Lawyers agree

    Best Answer
    chosen by asker

    Answered . The answer depends on two things.

    First, the Mortgage Debt Forgiveness Relief Act which says the debt discharged through short sales is exempt if the debt is discharged, i.e. the short sale closes escrow by December 31, 2012. There are 9 days left for the Congress to decide whether to extend it.

    Second, if it is not extended, there is the insolvency exception you may base your exemption on if you can prove that at the time of the discharge your total liability is more than your assets.

    Please check your cpa on the insolvency issue to see if you qualify.

  2. Christopher Michael Larson

    Pro

    Contributor Level 19

    8

    Lawyers agree

    Answered . If the lender is discharging debt, you might receive a 1099-C, which will give you income unless you meet one of the exceptions mentioned by the previous attorney. I really cannot see them extending the Mortgage Debt Forgiveness Act for another year seeing as how they cannot pass anything right now, but I could be wrong. In that case, you would need to meet the insolvency requirement. You would file a Form 982 with your tax return in the year you receive a 1099-C.

    Christopher Larson
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  3. Steven M Zelinger

    Pro

    Contributor Level 20

    8

    Lawyers agree

    Answered . The prior attorneys are correct: You may receive a 1099 C, but you may be insolvent or able to exclude the discharged debt from your taxable income depending on the law at the time. I doubt that in reality this will effect your choice.

    This is not legal advice nor intended to create an attorney-client relationship. The information provided here is... more
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