Posted on: 25th Jan, 2010 07:50 am
Hello out there! I owned an investment property in ATL and I live in MIA. I short sale it on 1/22/10 for 15K and I owed the bank 80K. They agreed to eat total loss and not come after me. My question is do I have to pay taxes on the difference between 15k and 80 as earned income when I file in 2010?
Hi iamfjc,
If the lender forgives the difference of $(80-15)k or $65k, it will be considered as your taxable income. You will have to pay taxes on this amount when you file your taxes. You could have claimed tax relief under the Mortgage Forgiveness Debt Relief Act and avoided taxes on this canceled debt amount. But since the property was used as an investment property, not as your principal residence, you cannot claim the tax relief.
If the lender forgives the difference of $(80-15)k or $65k, it will be considered as your taxable income. You will have to pay taxes on this amount when you file your taxes. You could have claimed tax relief under the Mortgage Forgiveness Debt Relief Act and avoided taxes on this canceled debt amount. But since the property was used as an investment property, not as your principal residence, you cannot claim the tax relief.