Just as with a foreclosure, short sales have variable possible tax considerations that you have to take into account when doing your finances and recovering from pulling out of your mortgage. Luckily, the tax ramifications of a real estate short sale tend to be less than in the case of a foreclosure. After you have finished the huge ordeal of your short sale and everything is completed, it is highly likely that your banker or lender will want to give you a1099, for the discrepancy between the selling price your house want for and the amount you owed. It is possible that neither of these things will happen, though, depending on whether or not certain criteria are met. It is important to note that the US (and California) Congress is considering enacting legislation that would step in and prevent such situations from arising, eliminating the IRS's ability to tax n these occasions, re-categorizing the money from the 1099 as 'non-taxable income' or not even as income at all. And wither certain home loans mortgages, bankers and lenders can instead go for a court decision known as a 'deficiency judgment'. This is a particularly cruel tactic, as it makes you personally responsible (and legally liable) for the amount difference between what your house was sold for and what you originally owed. This is a particularly hard blow, as you've already suffered through having to do a short sale in the first place. Although, in some cases, lenders would be willing to accept and IOU for you to pay at a later date. (Not to be confused with a loan! They don't collect interest on the IOU) The scary part is that only the lender possesses the discretion whether or not they want to go for a deficiency judgment in cases in which they are permitted. Only the best loss mitigation consultants can really apply themselves to each and every short sale case and make sure that you get the best possible outcome- avoiding any IOUs and getting out of as many taxes as is possible. And legal. Settling your debt is a tricky thing and there is a lot of red tape, and it only gets more confusing if you add taxes into the mix. Getting mixed up with the federal government just as you're losing your home is highly distressing, so make sure you have a loss mitigation specialist you trust to help you through.
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