Saturday, January 30th, 2010
Short sale tax and credit score?
verypolish1 asked:
I am considering a short sale on the my house, as I am looking at a negative equity situation. I am up to date on my payments, but will have no money to bring to closing. It looks like I will have to sell it for $10K less than I owe on it. I have consulted a lawyer who says it is a viable option. I also understand the waived amount will be taxed as ‘phantom’ income. Is it taxed as a paycheck would be? or like an early withdrawl IRA? Lastly, will it impact my credit score even though I am up todate on my payments, but won’t be able to come up with the diff between what I owe on the loan and what it’s selling for… implementing short sale? Thanks!!
I am considering a short sale on the my house, as I am looking at a negative equity situation. I am up to date on my payments, but will have no money to bring to closing. It looks like I will have to sell it for $10K less than I owe on it. I have consulted a lawyer who says it is a viable option. I also understand the waived amount will be taxed as ‘phantom’ income. Is it taxed as a paycheck would be? or like an early withdrawl IRA? Lastly, will it impact my credit score even though I am up todate on my payments, but won’t be able to come up with the diff between what I owe on the loan and what it’s selling for… implementing short sale? Thanks!!
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January 30th, 2010 at 4:08 am
The sales expenses will be subtracted from the proceeds of the sale, increasing the deficit of the sale. The short fall will result in a 1099 being issued for the forgiven amount. Check with a tax person, but it is my understanding that forgiven debt on a house sale is not taxable or it is likely to become law soon. If not the shortfall is treated just like ordinary income.