Comments on: Short Sale Tax Consequences

By: Bill Gassett

Bill Gassett — Sun, 11 Mar 2012 16:45:45 +0000

Susan you are correct the mortgage monies had to be used for the home. For example if you refinanced and bought a car or went on a trip there would be tax ramifications because that money had nothing to do with the home. As far as being in solvent for Massachusetts tax purposes you would just need to show your debt is greater than your assets.

By: Susan

Susan — Sun, 11 Mar 2012 02:31:16 +0000

Bill,
The Mortgage debt relief act of 2007 seems clear in the sense that you are exempt from the amount forgiven in the short sale of your home based on your 1099C. But is it true that if you have rewritten your mortgage over the life of the loan and used any additional money taken on the property for anything else but home improvements this relief act does not apply or is reduced by that amount. Also, if trying to prove insolvency, do you have to be insolvent by the total amount forgiven by the bank? Meaning the amt on the 1099C or insolvent by any dollar amount?

By: Megan

Megan — Sun, 29 Jan 2012 02:43:21 +0000

I made a mistake, it is a 1099-K form they sent me. I will contact the company that sent it to me and tell them they made a mistake. Hopefully they will fix it. Thank you!

By: Bill Gassett

Bill Gassett — Sat, 28 Jan 2012 18:42:51 +0000

Hi Megan – Great question but unfortunately I am not qualified to answer it. I would check with a qualified tax professional.

By: Megan

Megan — Sat, 28 Jan 2012 18:38:04 +0000

My mother died in NJ at the age of 56. As her only heir, I became Executor of her Estate. However, her Estate had a value of $3500 total; I had to pay for most of the funeral, and everything else, myself. She owed $140K on her house, and it sold in a short sale for $66K less than she owed, after Bank of America first tried to sued the Estate and me personally. I was told I would not be responsible for the debt forgiveness since I had nothing to do with the mortgage; it would go under my mother’s name since the mortgage was only in her name. However, I just received a K-1 for $66K debt forgiveness, in my name and social security number!! What is going on – I don’t have to report it as income do I? I didn’t receive a penny from the house sale or the Estate – in fact, I had to spend my own money to pay for the funeral, bond, and other expenses!

By: Bill Gassett

Bill Gassett — Sat, 12 Nov 2011 13:46:26 +0000

Rhonda – you need to check and see what the approval letter for your short sale says. There should be language in the short sale approval letter that states whether the lender has retained the right to collect what you owe in the future. The lender could be reporting that they did not collect on the debt in which case you probably do not owe any Federal taxes under the debt relief act. I would suggest you check with an accountant or qualified tax professional. The state of Massachusetts does not recognize the debt relief act. You will need to pay Mass taxes unless you can show you are insolvent.

By: Rhonda A

Rhonda A — Sat, 12 Nov 2011 01:50:34 +0000

Bill,
I just closed on a short sale on a rental property in Mass. I live out of state i owed (186,681.40 ) the property short sold for $135,000 and the bank only rec’d $118,649.78 the diff of ($89,462.48) am i still responsible for paying off the remaining balance? How will the remaining balance be reported to the IRS. I have not received any info from the bank as of yet. I had funds in my escrow/impound overdraft of $3,000 where does this money go now? confused about the whole short sale process and afraid that i will be paying out of my butt with taxes due to this short sale. Please explain!

By: Bill Gassett

Bill Gassett — Fri, 07 Oct 2011 12:55:29 +0000

Susan unfortunately there is not. Massachusetts does not recognize the debt relief act. In order not to pay Mass taxes on a short sale you need to show that you are insolvent.

By: Susan Cline

Susan Cline — Fri, 07 Oct 2011 12:24:13 +0000

Is there anything like the Mortgage Debt Relief Act of 2007 for the state of Mass.? It seems unfair that families desperate enough to short sale the homes they can’t afford get socked with bills for thousands of dollars from Mass DOR.

By: Bill Gassett

Bill Gassett — Fri, 07 Oct 2011 11:39:29 +0000

Jack The Debt Relief Act is in place until the end of 2012.