are shortsales taxable to seller? - Posted by graymule
Posted by graymule on November 06, 2002 at 10:18:47:
If I negotiate a short sale successfully with the bank --ie: half of whatever is owed by the homeowner, does the homeowner get taxed for the forgiveness amount of the loan?
The exclusion to this is if the Debtor is “Insolvent” or “Bankrupt”. The definition of Insolvent is when your liablities exceed your assets, prior to any debt foregiveness… as described by IRS Publ 908, Bankruptcy Tax Guide… and IRS Publ 544, Sale and Dispostion of Assets.
Lets face it… a Debtor is hardly/rarely going to qualify for a Short Sale, unless they are technically “Insolvent”… in 95 - 99 cases out of 100. So for Insolvent taxpayers, this is a Mute point… no taxes due. For the rare instance where a Short Sale is approved and the Debtor has assets exceeding liabilities, then yes this amount of debt foregiveness is taxable… but paying the taxes due on the debt foregivness is still a pretty good deal. Why…? For the most part if you are not able to pay a debt, my guess is that you aren’t going to be in a high tax bracket, in most cases. Sooooo, would I rather pay 30K of debt… or 15% taxes due, on the 30K of debt foregiveness…? Let me think about thsi and get back to you…:)
Too much is made out of this aspect of the tax code…IMHO. From a practical matter, it is rarely an issue.
followup:are shortsales taxable to seller? - Posted by graymule
Posted by graymule on November 06, 2002 at 10:48:38:
If sshort sales are taxable to the seller , what is the advantage of this type of arrangement for the seller?
This is how I’ve come to understand the process thus far-they avoid foreclosure, but if the property goes to auction, and it sells for less than the amount owed to the bank, doesn’t the bank still try to get the balance from the seller? It’s my understanding a short sale still looks bad on their credit, but not as bad as foreclosure. any insights from those with more knowledge is greatly appreciated.
