short sale dilemma - Posted by brian_wa

Posted by John Corey on May 27, 2006 at 06:56:44:


What you want and what the law says might be two different things here.

The tax will be on the amount of the loan forgiven. Hence it will be a lot less to pay than what the seller owes. A small bill being better than a large bill.

If they get hit with a foreclosure on their file it will be a bigger problem in most cases than an IRS bill (assuming that IRS bill does not turn into a tax lien).

Take a look at the article Stew referenced. There is good info there.

At some level you are trying to help. You just can not help fix all the problem as a short sale investor. At some point the chips land where they land and the seller needs to recognize that getting out of the loan has a price attached (the need to move, the credit dings up to this point, the tax on the debt forgiven - somewhat similar to the loss of equity if they had equity in the property).

John Corey

short sale dilemma - Posted by brian_wa

Posted by brian_wa on May 26, 2006 at 21:01:00:

The lender for a loan on a short sale deal I’m working on is willing to accept a short sale offer. However, they stated that they would have to send my seller a 1099 on the amount that they stand to lose. I of course don’t want my seller to have to pay any tax but not sure if there’s a way. I heard that if the seller is insolvent, then he/she won’t have to pay for any taxes associated with this transaction. Can someone clarify?

Thank you so much!