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Article Date:
April 2012


Word Count:
1210

 

 

How Tax Law Treats the Foreclosure or Short Sale of Your Principal Residence


by Walter Wetterman, Attorney at Law

 

Tax Consequences and How Tax Law Kicks You When You’re Down

 

To begin, this article is limited to the disposition of your principal residence.

 

We hope you are reading this before negotiating a short sale of the home or, even worse, facing a foreclosure sale. Both the short sale and the foreclosure bring into play three tax traps:

1.

Cancellation-of-debt income

2.

Reduction in basis and tax attributes

3.

Capital gains

 

Before getting to the traps, let’s review some basic terms that you need to know.

 

Basic Terms

 

Short sale. A “short sale” is the sale of real estate at a price that is less than (“short of”) the balance due to the mortgage lender.

 

Foreclosure. A “foreclosure” is a proceeding brought by a mortgage lender ... Log in to view full article.

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