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irizarrymarilyn · Joined: 27 Oct 2007 Posts: 7 4.79 Dollars($)

Hi, I was told that if you primary residence short sales, that you may be able to not have to pay the taxes for the difference if you
claim insolvency on your taxes. What exactly is this about?So scared of the tax consequences of the short sale. Thanks.

larry · Joined: 27 Jun 2007 Posts: 3322 474.67 Dollars($)

Hi Marilyn,

If you can prove that you are insolvent, it may be that you need not to pay tax on the difference of the amount but it depends on the circumstances. That means your liabilities exceeds from the fair market value. So it is possible that of your forgiven debt is not taxable or may be only a portion of it is counted as income.

Thanks,
Larry

jenkin7 · Posted: Fri Nov 16, 2007 12:09 am Post subject:

Hello Marilyn,

If your liabilities exceed your assets then you may claim insolvency and your unpaid debt may not be considered taxable. But you have to prove your insolvency to the IRS at the time of filing tax returns.

If the Mortgage Forgiveness Debt Relief Act of 2007 is passed as a law then this tax on forgiven debt will be eliminated for a short sale of primary residence.

Guest

This is to Larry:

"it may be that you need not to pay tax on the difference of the amount but it depends on the circumstances."

what do you mean by amount here?

"So it is possible that of your forgiven debt is not taxable or may be only a portion of it is counted as income."
I don't quite understand what you are trying to say here?

Guest

jenkins, you mean if i prove i'm insolvent, i need not pay taxes on the forgiven debt. But if laws come into being with the declaration that one need not pay tax on forgiven debt, then there's no need to porve insolvency, isn't it?

larry · Joined: 27 Jun 2007 Posts: 3322 474.67 Dollars($)

Hi Terry,

Welcome to this forum.

jenkin7 · Posted: Mon Nov 26, 2007 9:35 pm Post subject:

Hello Gabriel,

Yes, you are correct. If the Mortgage Forgiveness Debt Relief Act passes as a law then there is no need to prove insolvency. The tax that you have to pay on the forgiven debt will be eliminated automatically by this law.

Guest

Has this Act been passed as law?

adonis · Posted: Tue Dec 30, 2008 12:30 am Post subject:

Hey kokeemon,

This law has been passed in 2007. As far as I know, this law allows you to exclude certain canceled debt on your principal residence from income. Prior to this law, the forgiven debt amount was considered taxable.

Posted: Wed Nov 24, 2010 6:03 am Post subject:

this only refers to the IRS forgiving you of the debt, the sate willstill tax you

Guest

Hi,
I would like to know what is the tax consequences on a multy family short sale. I used one of the 3 apartments as my primary residence.

smithsussane · Posted: Mon Feb 07, 2011 10:35 pm Post subject:

Hi Aida!

Welcome to forums!

If the lender has forgiven the deficient balance resulting from the short sale, then the forgiven debt will be considered as your income. But depending upon the Mortgage Debt Relief Act, you won't be liable for paying the taxes on the deficient balance.

Feel free to ask if you've further queries.

Sussane

Guest

Thanks Sussane.I was confused and I went to see an specialist in taxes and the expert told me exactly the same,but also said because this it is a
multi family house I have to pay taxes for depreciation on 2/3 of the house because I'm living there. It's this ok?

jameshogg · Posted: Tue Feb 08, 2011 10:34 pm Post subject:

Hi Aida,

Well... as the tax adviser has said so, I think you should go with his/her words. You will be liable for paying taxes for the depreciation of the property.

Thanks

Guest

I did a short sale on a condo that is not my primary residense. I just received two 1099, one from the bank and one from the title company, both totally approximat $151,000. plus i made a promissory note agreement for $10,000 and had to give them $2500 upfront. Now, i received these two 1099. Do I have to pay taxes on these two 1099 and if so how much. Do you know the form that I need to fill out for insolvency. How do I prove insolvency? Please Help me, Thank You

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Insolvency and Short Sale Tax Consequences