March 25, 2012. Foreclosures and short sales are an unfortunate fact of life, even here in the San Francisco Bay Area. As a CPA firm working in San Francisco, we at Safe Harbor CPAs strive to be the very best we can be and be the very best tax CPA for our clients, large and small.
First of all, what is a ‘Short Sale?’ What is a ‘Foreclosure?’ In today’s tough economy, a foreclosure of course is when an individual cannot meet his or her mortgage obligation. At some point, after the inability of paying the monthly mortgage, the house is foreclosed upon usually by the bank holding the mortgage. At this point, the client ‘walks away’ from the property so to speak. In general, there are two types of foreclosure in our beloved state of California: judicial and non-judicial. In some cases, the difference between the amount owed and the foreclosure sale price is recoverable from the original property owner – you’ll need to speak to an attorney to get legal advice on this process.
A ‘short sale,’ in contrast is when you as the seller get the bank to agree to less than what is owed on the property. It is not as damaging to your credit rating, generally speaking. Now, again we are not attorneys and this post is not ‘legal advice’ in any way, shape or form.
Tax Implications of Foreclosures and Short Sales
Where we come in is on the tax side. Suffering a foreclosure or short sale is bad enough. What is worse is owing tax on the amount ‘forgiven’ to you by the bank. In some situations, the Federal and State authorities may consider this ‘forgiven’ debt to be income, and therefore taxable. So if you have had a foreclosure or short sale, you need to speak to an expert CPA in foreclosures and short sales to determine how best to structure it, and how to avoid any nasty tax implications.
Knowledge is power, and this is true very much in today’s tough San Francisco Bay Area real estate market. Talk with one of our expert CPAs about the tax implications of a possible short sale or foreclosure, before you end up owing unnecessary taxes! Call us at (415) 742-4249!