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Arrowhead Escrow Blog▣ Riverside California Short Sales...Short Sales Tax Liability vs Foreclosure Tax Liability0 Comments added to this post A Short Sale and a Foreclosure do not have the same tax liability! Which is worse?... Today lots of home owners in Riverside, California are in distress. Most are faced with only two options: 1. Short Sale or 2. Foreclosure!
Other than the differences on impact to the Riverside, California home owner's credit and future ability to buy a house a foreclosure may have different tax consequences (usually worse) than a short sale.
Because the Riverside, California home owner is not paying off the full amount of the mortgage in either situation and the bank gave them the money to buy/refinance the house the IRS will treat what is not repaid to the lender as income!
Once either the short sale or foreclosure is complete in Riverside, Calfornia the lender will issue a 1099 in both cases. All 1099's are not the same! There are some that are much worse than others.
In a short sale you are issued a 1099c.
The 1099c is much more friendly than the 1099 issued for a foreclosure in Riverside, California:
If your lender forecloses on you, they will be forced to issue a 1099A.(This is the bad 1099) 1099 A's are issued when secured property is abandonded. The reason the 1099A is worse than its alternate 1099C is because the amount will be more. What we mean by that is this: if you short sale you are at least contributing something to pay off the loan balance to minimize your ill-gotten income.
On a foreclosure you are contributing nothing!Plus, the lender will add all the fees they can, which include: legal, cleaning, selling, keying etc. These fees plus the fact you contributed nothing towards the balance, will greatly increase your tax liability!
***In 2007 the Mortgage Debt Relief Act was passed that would allow home owners in certain instances to not be taxed on the amount they did not repay the lender. Come back later for a blog on this topic.***
************************************************************************************ Disclaimer The views and opinions expressed in this blog are that of the author and not a representation of the views of Arrowhead Escrow, Inc. Any financial or tax information provided is just provided as a courtesy and we advise you to seek a financial or tax professional before making any decisions. All material posted here in is deemed to be the property of author. Any dissemination of said material in whole or in part is strictly prohibited with out prior written consent. ************************************************************************************ |
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Each option, lets face it, SUCKS! Neither are what the Riverside California home owner wanted when they bought the house. But what they want and what their situation is two different things. So we as real estate professionals need to help them make the best of the situation.
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