People say “If I’m lucky enough to be able to have a short sale on my property and get the bank to forgive or forget about some of my mortgage balance, are there any tax implications? Am I going to pay for something that I’m not really aware of?” The answer is yes, you may. Under the law, if a bank forgives part of the debt, part of your mortgage, that’s considered income to you. So for instance, if they say we’ll take $20,000 less than what you actually owe us and that $20,000 is considered gain and you may owe tax on that gain. However, there has been recent changes in the federal law which may allow you to avoid taxation on that forgiving debt. So work with your attorney and work with your financial advisor upfront to fully understand whether there will be an adverse tax, consequence of a short sale or not.
Marc N. Needelman is an experienced real estate attorney, located in Hartford, CT. Contact the law office with questions and get a free initial consultation.
