It is my understanding that if the owner do qualify for the short sale, it isn’t over because the remaining difference between their home’s value and the balance on their mortgage is considered a “forgiveness of debt” and in virtually all cases, that means a 1099 is coming in the mail. The owner has to pay taxes on their loss, as if it were earned income that year.
Hollyberries
If they fill out IRS form 982 they wont be taxed on the forgiveness of debt. Problem solved.
Wow, thanks for the info.
Thanks for your info. BTW, there are some foreclosure gurus who are dead against short sales? Is there a reason for that?
Hollyberries
Honestly I think it is because they do not understand how it works and/or it is hard to explain! There is great money in short sales… Also look at it this they also almost all tell you to look for houses that have at least 30% equity in them now on a short sale you are lucky to get say 20-25% or less that blows there whole system out of the water. I did tons of good deals with 10-15% equity… It is not the deal…Its what you do with it!! Hope this helps!
Robb
It is not the deal…Its what you do with it!! Hope this helps!
So true, Robb.
Holly,
If the seller has owned and lived in that residence for at least 2 out of the last 5 years, then any profit that they make on the sell of that residence is not taxed ($250K per single, $500K per married). That includes a 1099 forgiveness of debt from a short sale.
Raj