The easy answer is no, there is no way that the bank can tax you on the short sale because your home is taking a loss. There is a short sale law that gets renewed every year to ensure that you are exempt from the normal taxes that you would have to pay if you were to sell your home as a regular standard sale. Upon the completion of the sale, you will receive the HUD1. Take this to your tax accountant, and they will be able to set you up. This exemption applies only if the home is your PRIMARY residence. The law is different if this property is an investment property.
Do your tax research before starting the process. The debt you are forgiven during the process can be credited to you as taxable income only if this is an investment property. If that is the case, you must pay income tax on that forgiven amount. If you meet the standards of insolvency by the IRS at the time of your short sale, you won’t have to pay those taxes. These standards include many write-offs that our short sale team will discuss with you if you so desire.
Call us today at (703) 782-8100 or fill out our Contact form for a FREE, no commitment, evaluation on whether you may qualify for a Short Sale.