Will a Successful Short Sale be Subject to Taxes?

If you’ve been told that a short sale may accompany enormous taxes, you’ve been misinformed. 90% of successful short sales end in zero tax liability. It may sound bogus, but you could have zero tax liability if you diligently navigate the short sale process.

There are Two Things that You’ll Need Clarification On

1. What Happens to Your Forgiven Debt?

For there to be a successful short sale, your lender has to forgive the remainder of your mortgage debt. This is usually the amount on your mortgage that the sale of your house couldn’t cover.

If your lender forgives your debt, you are free from this debt. I mean completely free! The IRS will report the forgiven debt as income.

However, you must also be aware that the lender has the power to claim the remaining debt. This will be a deficiency claim, and in some States will lead to a deficiency judgment.

To ensure that your lender forgives the remaining debt and exempts you from taxes, you should work with an expert from Bright Horizon.

1. Mortgage Forgiveness Debt Relief Act 2007

This law allows taxpayers to exclude up to $250000 of forgiven debt from their taxable income. Meaning, if you are qualified for this debt relief program, you’ll be able to exclude up to $250000 of forgiven debt.

But first, you need to meet the criteria and your debt has to be forgiven by the lender.

It is possible to do this on your own but to stand a better chance, you’ll need to work with an expert from Bright Horizon.