A note from Paul Griz, CPA about Short Sales and Taxes

Whenever a debt of a taxpayer is forgiven by a lender, whether the debt is credit card debt, home mortgage debt, or other debt, the forgiven debt, i.e., debt relief, is generally taxable to the taxpayer.  With regard to short sales or foreclosures, if you have reached an agreement with your mortgage lender in which the lender has agreed to forgive your mortgage, you will be subject to income tax consequences.  The lender will typically issue either Form 1099-C “Cancellation of Debt” or Form 1099-A “Acquisition or Abandonment of Secured Property” in the year of the asset sale.  In other words, you should receive one of these forms from your prior lender in the year of the closing of your home.  At that point, the debt forgiveness is reported to the IRS as income. Read the rest of this entry