Every short sale situation is entirely different, so your tax ramifications may be unique. Conventional wisdom states that it may not be worthwhile to sell one’s home through a short sale process as a result of the tax implications resulting from the forgiveness of debt. Though it is true you may receive a 1099 as a result of a banks forgiveness of debt, you may have alternatives related to realizing this tax burden. View Short Sale Tax Consequences Arizona for more information.
If a bank or lender releases a borrower of their loan obligation, you may be required to recognize the forgiven amount on your tax return as income. You may receive a 1099-C from your lender which represents the forgiven amount of the cancelled debt. Depending on your circumstances, there may be ways for you to mitigate tax liabilities as a result of a short sale. For this reason, you should consult a tax professional.
Once thing to take into consideration regarding foreclosure is that the borrower may receive a 1099-A (Abandonment of debt) which also represents the forgiven amount of the remaining loan balance. The Mortgage Debt Relief Act of 2007 may provide a reprieve for borrowers who receive a 1099-C. For this reason, it is important to consult a tax professional before making a final decision on realizing any forgiveness of debt through short sale or forclosure.
Review the information regarding “The Mortgage Debt Relief Act of 2007” and how it provides relief to homeowners. For more information on the Mortgage Debt Relief Act, how it works, who it applies to, and more, please visit the IRS website: Read The Mortgage Debt Relief Act of 2007.
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