The Tax Implications of Loan Forgiveness
Although the process doesn't seem very forgiving to most homeowners, foreclosures and short sales usually result in the lender receiving far less than it is owed. The IRS sees this as loan forgiveness. Since this is a financial benefit to the former homeowner, it has tremendous tax consequences.
Our attorneys can help you understand the short sale legal issues and tax implications. Contact Sobti Law Group today. We serve clients in Palm Springs, San Bernardino, Corona, Beaumont and Orange, California.
A Taxable Event
A few of the tax changes that you should be aware of after a short sale or foreclosure include:
- 1099-C: After a short sale or foreclosure you will need to use this form for your taxes to report the deficiency balance. The deficiency balance is the difference between what you owe on the home and the lesser sale value in a short sale or foreclosure that the lender actually receives. If the lender accepts this lower amount as payment in full, the IRS sees this as loan forgiveness, which is a taxable event.
- Insolvency: if you are insolvent, and that is the reason the lender accepted the lower purchase price of the property as payment in full, you could be exempt from this taxable forgiveness of debt (please always consult your C.P.A. and/or tax attorney for specific advice).
- Audit: If you do not properly report the short sale or foreclosure, you could face serious tax consequences, including the possibility of an audit if the seller has recorded this event and you have not.
These are just a few of the tax issues you could be facing with a foreclosure or a short sale. Unless you are someone with exceptional knowledge of the federal income tax code, you should contact a skilled and experienced attorney from Sobti Law Group to help you through this maze of complicated tax issues. We have been down this road plenty of times, and we can use our experience to help you understand the possible tax implications of your short sale or foreclosure, and help you comply with all the applicable at laws.
Contact Corona Bankruptcy Lawyers for a Free Consultation
If you want to get a better understanding of what kind of tax implications you are facing, either call 888-627-8013 or contact us online. One of our lawyers would be happy to look over your mortgage and financial situation to help you understand what is happening. If you choose to hire Sobti Law Group, we can represent you through every aspect of a short sale or foreclosure to make sure your interests are protected and you do not make any crucial tax-related mistakes that could cost you dearly in the long run.
