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: income tax considerations of a short sale
Please consult with your tax accountant or advisor with respect to the potential income tax consequences of a short sale based on your specific situation.
While the listing below highlights many of the tax consequences of a short sale, SSS National, LLC is not providing tax advice. We are providing you and your accountant with an outline of income tax issues that may be appropriate for your individual situation. Only you and your advisors will know which ones do, and do not apply.
If you purchased your condominium unit as an investment in rental property, you may be able to offset your short sale gain with an ordinary loss on the sale of your investment.
This is unlike the more common short-sale - which involves a primary residence, whose loss is not deductible.
The following bullet points provide an outline of the most common income tax considerations when considering a short sale:
- Ordinary income is created due to cancellation of indebtedness (COD).
- If the property is your primary residence, the COD income is generally not taxable under the Mortgage Relief Act of 2007.
- If you are an investor in rental real estate, ordinary loss (Internal Revenue Code sec. 1231) may be created upon sale of investment for a loss.
- Ordinary loss can be used to offset ordinary gain.
- Passive activity losses that were previously suspended with respect to this investment are now usable as well.
- Insolvency exception to avoid COD income.
CLICK HERE to read attached article for further discussion of SHORT SALE TAX CONSEQUENCES.
IRS Circular 230 Notice Requirement: This communication is not given in the form of a covered opinion, within the meaning of Circular 230 issued by the United States Secretary of the Treasury. Thus, we are required to inform you that you cannot rely upon any tax advice contained in this communication for the purpose of avoiding United States federal tax penalties. In addition, any tax advice contained in this communication may not be used to promote, market or recommend a transaction to another party.
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