SHORT SALE TAX IMPLICATIONS

Taxes and the sale of your home - You should always consult with a Lawyer or Tax professional when dealing with Taxes and tax ramifications on business investments as well as personal finances.

That being said, there are certain things one must consider when Short Selling your home.  One such issue is the issuance of the 1099c.  The 1099c is a tax document issued to you by the lender at the end of a short sale detailing the amount of debt forgiven as a result and settlement of the short sale. 

If you short sale, foreclose or are giving a deed in lieu of foreclosure. The amount of debt that is 'forgiven' by your lender may be viewed as income for that tax year by the IRS.

Taxes and their forgivness is complex and should be discussed at length with your tax professional.  One must also consider what the best rout tax wise would be best in your particular situation.

Situations that dictated your tax liability differ on a case by case bases, such as the Mortgage Releif Act.  This act passed by the Bush administration sets out specific circumstances for primary home owners that have short sale their homes and are hit with what is called phantom income.  Phantom income is just that, income that is not really recieved but for tax purposes you are liable for.

I cannot stress enough to discuss your tax situation with a Tax professional.