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Tax Ramifications of Foreclosure or Short Sale
CALIFORNIA TAXES ON HOME FORECLOSURE AND SHORT SALES
The Tax Consequences of Walking Away Can Be Steep
If you are considering home foreclosure, a short sale or bankruptcy as a solution to your mortgage debt problem, do not take any irrevocable steps before you understand the tax consequences of your actions. An alternative that looks good from a business point of view can be disastrous from a tax point of view.
At the Law Offices of Andersson & Andersson in Walnut Creek, California, our lawyers advise homeowners on the tax consequences of home foreclosure, short sales and abandonments. We advise individuals and families throughout the San Francisco Bay Area and northern California.
A Costly Mistake
Some people get out from under mortgage debt only to be hit with a tax bill amounting to tens of thousands of dollars. The amount of the lender’s losses may be viewed as loan forgiveness both by the IRS and California tax authorities. Loan forgiveness is taxable as ordinary income unless you qualify for one of a limited number of exceptions. Many income tax preparers lack the experience and knowledge to correctly analyze and report your transaction.
When you have a home foreclosure or short sale in a particular tax year, it is very important that your taxes are prepared correctly that year. There are certain elections you can make to lighten the tax load. However, these elections must be made on a timely basis to avoid the imposition of unnecessary taxes.
There is a discrepancy between California tax treatment of loan forgiveness and federal tax treatment, so you will need a professional who understands both federal and state tax law to assist you.
For More Information
If you are likely to lose your home or rental property, some timely advice now can save you a substantial tax bill later. For more information or to set up an appointment with our California taxes on home foreclosure and short sale attorney, call 925-935-1050 or fill out the contact form on this website.