When the Principal Residence of a Tax Payer is sold in a Short Sale, the following Tax Consequences may be expected for a Recourse Mortgage Loan or Loans:
1. Expect 1099-C or 1099-A Or Both in the following Tax Year from the Primary Mortgage Bank for the property sold.
2. Expect 1099-C or 1099-A Or Both in the following Tax Year from the Line Of Credit (LOC) Bank for the Primary Residence sold if there is LOC.
3. If the Tax Payer is Insolvent before the Short Sale Date, Insolvency Work Sheet needs to be prepared.
4. Tax Payer's Credit Rating will be down graded for at least 3 years.
5. Figure Out Debt Cancellation Income.
6. Debt Cancellation Income is added to Annual Overall Income for Tax Calculation.
If you the Short Sale is planned properly, you shouldn't be surprised when the Tax Return is prepared in the following year. For Q & A, call Kash @ Yajnik & Mehta Associates (925) 963 4891
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