Short Sale / Foreclosure – Tax Ramifications
Ideally you should consult with a Tax Adviser before doing a short sale or allowing your home to go into foreclosure, but if you already have done a short sale or foreclosed Make sure you choose a Tax Adviser that has the knowledge and experience to report it correctly.
If you do a short sale you should receive a 1099 C reporting the amount of deficiency. If you let your house go into foreclosure you will get a 1099 A and may also get a 1099 C (not necessarily in the same year) ignoring these forms (labeled “important tax document” on the envelope) on your tax return is not a good idea ( the IRS also received the information) nor is doing your tax return yourself.
Be careful who you choose to prepare your taxes, I was in a tax office in another city a couple months ago and the lady was asking me how to report a 1099-C for a client of hers who lost a home in foreclosure.
I cannot stress enough the need to seek legal counsel for each individual case and how they may or may not be affected with their individual circumstance.
The other area would be in the area of any possible Tax Consequences as a result of any forgiveness of debt by the lender. Again each individual should seek advice from a Tax Adviser of any impact in their individual circumstance.
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