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lv1976 · Joined: 19 Feb 2009 Posts: 2 2.02 Dollars($)

Here's our situation. We have a home in southern california that is rented out.

We bought it for $475K and currently owe $430K on it. We are thinking to do a short sale on it. Currently similar homes in that area are going for 300K.

Let's say we short sale for 300K, we will get 1099 from our bank for $130K, which means we'll owe tax on 130K.

However, since we bought it for 475K, we made a loss of $175K on it.

Does this mean that the loss of 175K will wash off 1099 of $130k that we'll get from the bank or since our income will be over 150K total loss on rental income doesnt count?

Please let me know.

Thanks

jameshogg · Posted: Thu Feb 19, 2009 8:27 pm Post subject:

Hi lv,

As far as I know, in California, the lender will not be able to sue you for the deficient amount resulting from the sale of the property. So the deficient amount will be forgiven. As it's forgiven, the lender will send you a 1099-c form. You will have to pay taxes on the deficient amount resulting from the sale of the property (money owed to the lender - sale price of the property).

Thanks

lv1976 · Joined: 19 Feb 2009 Posts: 2 2.02 Dollars($)

Hello James,

Do I still have to pay tax even though the purchased price was 475K so I made a bigger loss on it than income from forgiveness? This is rental property not primary residence.

edgonzalez75 · Joined: 30 Aug 2009 Posts: 1 1.20 Dollars($)

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kingno1 · Joined: 25 Apr 2008 Posts: 61 21.19 Dollars($)

Hello, Yes. your loss doesnt count here. Whatever income you had from 1099, you need to pay tax on it. BTW, I have a question here. Until when is the mortgage forgiveness act valid. I was told that it is active in federal and CA doesnt cover it for 2009. So, even if we are forgicen by fedeal, we still need to pay for state?
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Short sale on rental property - tax liability