Short Sale Foreclosures Tax Rules

Taxes due when selling foreclosures include if you do a warranty deed or grant deed. However your home is sold you will owe the IRS even if it is a short sale or foreclosure.

Depending on how long you have owned the residence you may incur a loss due to price declines, expenses from real estate brokers. Sellers will not be able to deduct those losses especially if the sellers are investors.

Real estate taxes and mortgage interests are usually higher than the market so with the absence of capital gains the properties estimated rent value still will not cover the mortgage.

Homeowners who have fallen behind on their mortgage payments must follow the IRS tax rules for foreclosures and repossessions which require the debtor to report the income from the sale of the home even if it was sold at a loss.

Since the tax code treats the transactions as a sale, so the reportable income which is the amount the debt that exceeds market value. It is recommended that before you sell a short sale or go through foreclosure that you figure out your tax planning.

Foreclosures and deed in lieu foreclosures are taxed it makes the debtor liable for the debt, consult a real estate attorney to find out the status of your mortgage to determine if it is recourse or nonrecourse.

This will include the cancellation of debt income vs. debt cancellation tax relief minus the fair market value of the home.

About Mark Knowles

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