Today TaxMama hears from Lori in Florida with a depressing question. “Can you please tell me where I would find more info on the tax implications from doing a short sale of primary residence? I have quite a few Florida clients that are doing this vs foreclosure. I know that it is cancelled debt, but due to the Economic Relief, is it exempt from income?”
[See Resource Box below for working links.]
Sorry to see that you are faced with many of these cases in your community. I wish that could have been prevented.
The answer is, the cancelled debt may or may not be income depending on whether it is the original loan on the property, or if it was refinanced. Mostly, the various legislations to help didn’t really help any of those folks who refinanced.
Here’s a starting point – IRS has a page with information and links to other resources for the Mortgage Debt Relief Act of 2007 : http://www.irs.gov/individuals/article/0,,id=179414,00.html
There’s more information here talking about – Home Foreclosure and Debt Cancellation http://www.irs.gov/newsroom/article/0,,id=174034,00.html
And IRS held a phone forum on cancelled debt a while back. I found the transcript of that session. Voila!
If you can find a workshop to give you some hands-on tips and some good worksheets, that would be ideal.
OK, I found a syllabus from the California Society of Enrolled Agents’ 2009 Super Seminar – Session 21 – Foreclosures, Repossesions and Cancellation of Debt . Call up the CSEA office to request it – 916/366-6646 . It’s only under $15.00 . I hope this helps.
And remember, you can find answers to all kinds of questions about cancelled debt and other tax issues, free. Where? Where else? At TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS page for :: the Mortgage Debt Relief Act of 2007
- IRS site about :: Home Foreclosure and Debt Cancellation
- IRS Phone Forum Transcript :: Canceled Debt (Tax Consequences)