short sale tax

If the mortgage company agrees to take $30,000 less than loan balance for a short sale, is the seller responsible to pay taxes on the amount discounted? I have read that the mortgage company would send that to the IRS as income for seller. An investor told me this week that the seller would not be responsible for any taxes.

I am not an accountant but the Feds have passed a revision to the tax code that should exempt your seller if the property is his primary residence. If it is an investment property it will be considered “phantom income”. However, if he is insolvent he may not have to pay on the short fall.

If the bank does not file a deficiency judgment against the seller they can file a 1099 on the short fall.

Your seller should check with his accountant.

I would certainly suggest to the Seller that in order to know all of the tax implications specifically related to their situation that they should talk to a CPA. Give your seller a copy of the Senate-passed version of H.R. 3648, the “Mortgage Debt Relief Act of 2007” There is a range of provisions and what marketingmaster has posted is correct.

Ok…guys…don’t mean to be rude…but folks are obviously not watching TV nor following politics…here’s your answer:

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