Is Short Sale Debt Taxable?

Posted on April 15, 2010 | by Denny Oh

State_Assembly_logo.259190515_stdIf you’re like one of the millions of people(actually, I’m not sure how many people are actually doing this) who are trying to short sale their home, I’m sure you’ve been worrying about the taxes that you’ll eventually have to pay.  Well, it looks like you may have dodged the bullet!  According to a recently passed California bill, Senate Bill 401, for those who qualify, forgiven short sale debt will not be taxable.

Clearly I’m not an attorney, nor am I a tax consultant, but from my interpretation of SB 401, it appears to relieve California State income tax consequences to people who successfully complete a short sale and meet specific criteria.  Compounded

with the Federal Mortgage and Debt Relief Act of 2007, my understanding is that if the home/loan was purchased as a primary residence and the indebtedness is less than $800K and the forgiven debt is less than $500K, you do no have to pay any income taxes on the forgiven amounts.  This includes first and second trust deeds, refinances that were applied to the previous criteria and for loans used to build, or improve a primary residence. 

Again, you should consult your accountant or real estate attorney, but this certainly sounds like good news!  If you have any questions about short sales, foreclosures, or anything real estate related, please contact me, Denny Oh, at 858–243–2092 or [email protected]

The real estate market is a crazy one right now and you need someone who knows what they’re doing on your side. 

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One Comment

  1. Keahi Pelayo says:

    I guess, with the government, there is no forgiveness.