This notice is from Kevin Brown, President of California Association of Realtors: Last fall, I informed you that the Internal Revenue Service (IRS) and the state Franchise Tax Board issued letters stating that California families who have sold their home in a short sale are not subject to either state or federal income tax on the forgiven debt. Recently, the IRS, claiming that its original letter had been “too broad,” issued another letter to clarify that under some circumstances (e.g., cash out equity lines), the debt forgiven in a short sale is still taxable. If you’ve worked with clients who sold their home in a short sale, urge them to consult a tax professional to determine what, if any, tax they owe. In a short sale, homeowners sell their homes for less than what is owed. If a lender agrees to the sale, the lender forgives a certain amount of the loan principal. Before Sen. Barbara Boxer and Board of Equalization Member George Runner requested clarification on behalf of C.A.R., it was not entirely clear that homeowners wouldn’t lose their homes and then be faced with a large tax bill as well. Homeowners with questions about taxes and short sales should contact their tax professionals. C.A.R. is working with Sen. Boxer to seek clarification of protection for property owners who completed a short sale in the first part of this year, relying in good faith on the original IRS letter.
Posted on: Sat, 21 Jun 2014 02:29:15 +0000
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