Posted by Brad Crouch on May 02, 1999 at 19:08:07:
Also, the difference between the amount of the loan balance and ultimate sales price will be considered “debt relief” by the IRS. The bank is required to send you a 1099C which includes attorney fees, court costs, back payments, etc.
The banks either have to send you this form (and a copy to the IRS) or pay the taxes themselves. So the end result of a “short sale” or foreclosure is a WHOPPING tax bill. And the IRS cannot be “bankrupted away”.
The seller may not be aware of these ramifications, so these points may be good things to bring up, in order to get a better deal. Motivation.