Tax implications
Often, the bank chooses on a short sale to take the loss as a tax write-off.
In case that the property is worth less than the outstanding mortgage the lender
will issue a 1099A for the difference.
For example if the outstanding mortgage amount was $450,000 and the lender accept $370,000. The lender will issue 1099 for $80,000.
If the sale did not cover your debt, and the mortgage company cancelled the debt, you have income in the amount of cancelled debt UNLESS you were insolvent at the time.
If that is the case, then the cancelled debt is not taxable to the extent of your insolvency.
In other words,if your liabilities exceeded your assets by $90,000 and the amount of forgiven debt was $80,000, you would have $10,000 in taxable income.
Any case is deferent and you have to consult your accountant regarding this matter.
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