Question: I am in the middle of short selling 4 of the 6 residential “investment” properties that I own. I have been told of the tax consequences that I may face regarding selling my properties for less then the mortgage. In all the 4 mortgages on the properties that I am shorting total about $700,000 but the offers I have total about $400,000. Will I be help liable for the $300,000 difference on my taxes?
Answer: You’ll likely be taxed on the amount that the lender wrote off or canceled. If you owed 700k on the houses and they were able to sell them (or they are valued at) 400k, and they cancel the rest of the debt, you would have 300k taxable as ordinary income. You’ll see this on your 1099.
Please keep in mind that if any of these were your primary residences, then any loss you had on that one would probably not be deductible. If all were investment properties you might be able to deduct it all (up to the max per year, and carryover the rest).
Check out the IRS web site where they will have information on the mortgage debt relief act. I would definitely suggest contacting your tax accountant for more specifics.
