Posted by JT-IN on May 07, 2007 at 20:37:20:
My read is the same as yours, that the tax treatment of a short sale and a foreclosure (assuming that bid price at auction were the same as the short sale), is exactly the same. Both having potential of taxable income to the debtor in the amount of forgiven debt.
The other aspect is this… what about the 1099C being sent by the lender, a financially culpable debtor not eligible for exclusion from taxable income due to insolvency, then having the lender pursue a deficiency judgment… I guess they wouldn’t do both; if the lender pursues the def, then the debt isn’t forgiven… A deep subject, really.
Way too much is made of this “potential taxable income from a short sale” business. I would say that 98% of all those who qualify for the ss, will meet the test of being insolvent, therefore not subject to the taxes on the financial benefit received. After all, the measurement of insolvency is prior to the forgiveness of the debt, and most folks will meet the exemption or the lender wouldn’t agree to the short to begin with, IMO.
Thanks for the ideas Dave.