In an earlier post, I discussed short sales as an option to Sellers who want to avoid foreclosure.  A recent article by Lance Churchill for REALTOR Magazine Online, "After the Short Sale:  Taxing what isn't There" explains the tax ramifications to homeowners who sell their home for less than what they owe.

Churchill explains that if your mortgage company forgives your original debt and approves a sales price that is lower than what you owe on the home, the IRS will still consider the debt income and it will be taxed accordingly. 

The National Association of REALTORS is supporting the S.1394, the Mortgage Cancellation Tax Relief Act which would cancel the law requiring homeowners to pay taxes on the debt their mortgage company has forgiven in a short sale.

For more information about tax ramifications on a short sale, contact your accountant for professional tax advice.

Posted by Rebecca D. Levinson

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