Will A Seller Have To Pay Income Tax On Any Short Sale Forgiven Debt?
Thursday, February 18, 2010
Prior to the Mortgage Debt Relief and Emergency Stabilization Act of 2008, money forgiven by a lender in a SHORT SALE was considered taxable income. In many circumstances, the new law no longer requires taxpayers to pay federal income tax on forgiven debt, provided the property is their principal residence only.
Taxpayers may exclude debt forgiven on their principal residence if the loan balance was less than 2 million dollars. The limit is 1 million dollars for a married person filing separate returns.
The law applies to debt forgiven in 2007, 2008 and 2009, and the Economic Stabilization Act of 2008 has extended this forgiveness through 2012. It includes debt reduced through mortgage restructuring, refinancing, home equity lines of credit, short sales as well as mortgage debt forgiven in connection with foreclosures.
As a reminder - this is debt that was used to buy, build, or improve, a principal residence only.
And - as always, consult your attorney and/or CPA concerning tax matters.
- Scott Askew
Posted in: Intown Atlanta Real Estate News