California Short Sale Tax – What are the California Short Sale Tax Rules?

Sacramento Short Sale Specialist Reports:
I used to hear it all the time, now most people know that the amount written off by the bank is actually income! The IRS/California franchise tax may tax you on the amount of the forgiven debt!
“How could I owe taxes on a short sale?“
So I may owe taxes on on a short sale? Taxes on what? I didn’t make any money!
What are the California Short Sale Tax laws?   

Short Sales and Cancellation of Debt

The IRS and State of California may tax you on the amount of the forgiven debt. (Forgiven debt  through foreclosure, with a loan mod or Short Sale.)
Questions on your particular situation? Contact us today at Forth Hoyt’s Sacramento Short Sale Center.
The difference between the short sale “net” price (the amount the bank actually makes on the sale after commissions and closing costs) and the balance of the mortgage loan, is the amount of the forgiven debt.
California law conforms, nearly exactly, to the Mortgage Debt Relief act of 2007  for tax years 2007 through December 31, 2012. But now that we know the Mortgage Debt Relief act of 2007 will most likely not be extended and will likely sunset as scheduled on Dec 31, 2012, there are more issues for short sales to be aware of.  Homeowners who consider a Sacramento short sale, must also  consider the tax consequences. California state law regarding short sales dictates the consequences homeowners face when they conduct a short sale in Sacramento.
California tax law regarding short sales requires homeowners to report debt forgiven during a short sale. This forgiven debt is considered income. The addition of this amount to a taxpayer’s other sources of income increases his tax liability. Thus, taxpayers can be required to pay more in income taxes when they conduct a short sale even though they never actually had physical control over how much or why the debt was forgiven. State tax law also stops homeowners from claiming deductions for losses resulting from a short sale.
How do you figure taxes on a California short sale? Are there IRS taxes and California State Taxes on a Short Sale?
Questions on your particular situation? Contact us today at Forth Hoyt’s Sacramento Short Sale Center.
916-316-3810