BiggerPockets

Could someone enlighten me on the tax implications for the homeowner of a short sale. My understanding is that if they had refinanced there would be a 1099 issued, but if it was the primary purchase loan there would be no such issuance. Could someone please elaborate or clarify if I am not correct.

Thanks for your help.

If there is a forgiveness of debt, then the lender should issue a 1099-C. If you originally financed the property with 10% down, chances are that you would still have basis more than the amount owed. It would be considered a sale and the selling price would be the debt discharged (amount on the 1099-C) and the basis would be (purchase+improvements-depreciation). You would have to go through the numbers, but you have to recognize this as a sale and use the 1099-C as your proceeds and show your gain or loss on your schedule D.

If this is a personal residence, then they may not issue one, but if they do, then you simply have the proceeds shown and the purchase price + whatever improvements you made and show a disallowed loss on the return.

Joe

Try checking out this link from the IRS. It is always best to consult a specialist. Try contacting a CPA that specializes in Real Estate.

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

Good luck!