What is the federal and state tax exposure on a short sale vs. a foreclosure on a rental property in CA?

Asked by Mg, Santa Clara, CA Tue Mar 24, 2009

I am trying to decide if I should do a short sale or a foreclosure on a rental property in Sacramento. Other than a bigger credit hit on a foreclosure, does it make sense to do a foreclosure as opposed to a short sale from a tax exposure standpoint?

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Paul Andres, , Sacramento, CA
Tue Mar 24, 2009
As the other agents suggested it is best to get tax advise from a tax professional; however the mortgage forgiveness act of 2007 was extended through 2012.


California wasn’t as generous…

2 votes
Sue Archer R…, Agent, Palm Harbor, FL
Tue Mar 24, 2009
The credit hit is the biggest difference, but you also have more control in a short sale vs. a foreclosure in when you/tenants vacate the property, etc. It is a more responsible thing to do, if you want to count ethics here too...

From a tax exposure standpoint, I'd speak to a CPA about your personal situation. But one factor that people sometimes miss when discussing it, for owner occupied homes, there is a $250K/$500K capital exclusions when you sell your personal residence...so sometimes even when there's a tax consequences for writing off the loan, there's no real tax payment owed.....check with your CPA. Ed Cook at (916) 705-4958 is really good, if you needed one. On a rental? there's just too many factors to figure out here.
Web Reference:  http://www.suearcher.com
1 vote
Terry O'Call…, Agent, Sacramento, CA
Tue Mar 24, 2009
That is a great question for your C.P.A. In some cases the debt that is "forgiven" on a short sale is considered income for the seller. I would run these questions by your accountant and see what would work best in your scenario. Good luck.
Web Reference:  http://andreaandterry.com
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