Do I owe short sale taxes?


Yes, you do. Even if you sold your house at a loss on a short sale, you owe short sale taxes. No matter how much you sold your house for - if it was a regular sale, if you transferred title or went through foreclosure, there are still taxes to pay. However, often home sellers are often not aware they owe tax money even for the debt that is written off.

Why do I owe short sale taxes?

Short sale occurs when someone sells their property for less than it costs and the bank accepts the lesser amount. For example, a house worth $300,000 is sold at $250,000 and the bank agreed on the short sale. The whole short sale process takes a lot of time - from several months to a couple of years. Not only that, but also the home seller still owes taxes on the $50,000 the bank forgave them. The home seller will have to include the $50,000 on the tax statement as profit and pay taxes on it.

Who will suffer the most from short sales?

It's investors who bought properties in California, Arizona and Florida who can't flip them, and renting is not an option, as the rent won't cover mortgage payments and property taxes. Their only option seems to sell through a short sale and pay taxes.

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