In a short sale is the difference in the mortgage value and loan reported as income or can it be excluded?

Asked by Brenda, Tennessee Fri Nov 21, 2008

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William Noel, Agent, Woodbridge, VA
Wed Nov 26, 2008
Hello,

December 2007 Congress approved a change in the tax law for short sales. The difference between the sold price and the amount your mortgage was forgiven, no longer counts as taxable income. This only applies if the home was your primary residence and not an investment. Again if you sell the home there is no taxable income on the difference..
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Keith Sorem, Agent, Glendale, CA
Sat Nov 22, 2008
A short sale occurs when the proceeds from the sale are insufficient to pay off the existing loans and closing costs. Just because you sell at a loss and need to bring money to the closing table does op mean that your lender will authorize a short sale in which they absorb part of the loss. Sometimes you need to bring funds to the closing table.

The amount of forgiveness in the past has been taxable as income. IF your situation meets certain criteria you may be qualified to special treatment. Check with your Realtor or CPA regarding your circumstances.
0 votes
Pacita Dimac…, Agent, Oakland, CA
Sat Nov 22, 2008
Refer to the Mortgage Debt Forgiveness Act of 2007 http://www.whitehouse.gov/news/releases/2007/12/20071220-6.html

"This Act will create a three-year window for homeowners to refinance their mortgage and PAY NO TAXES on any debt forgiveness that they receive.

Under current law, if the value of your house declines, and your bank or lender forgives a portion of your mortgage, the tax code treats the amount forgiven as income that can be taxed."
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