IRS Allows Non-Taxable Debt Forgiveness
Selling Oakland Real Estate
If you are a seller facing foreclosure and attempting a short sale transaction, you could end up having a significant chunk of what you owe "forgiven" by your lender. Until recently, this forgiven debt was treated as income (and part of still can be) and you could expect to receive a 1099 form for the amount that was forgiven.
Obviously, for someone facing foreclosure this is just another problem to deal with as they attempt to bail themselves out of a tough situation. Luckily, the IRS recently changed the law to stop the taxation of forgiven debt in a short sale situation, however this only applies to the first loan. On many properties, there is a first and second loan, so any amount forgiven on a second loan is still taxable as income.
Date: Friday, February, 29th 2008 @ 09:31:06 PM
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