Tax implications of a short sale for the borrower could be so significant that a short sale would not be in the borrower's best interest. Before a short sale is contemplated, it is strongly recommended that the borrower seek the advice of a professional tax adviser.
Generally speaking, any relief on indebtedness from a short sale, regardless of whether the loan is a recourse or non-recourse loan, is taxed as ordinary income. There are, however, some exceptions to this rule that may benefit a taxpayer involved in a short sale. For more information on the tax implications of short sales, see the CAR legal article 'Taxation of Foreclosures, Deeds in Lieu of Foreclosure and Short Sales.'
Generally speaking, any relief on indebtedness from a short sale, regardless of whether the loan is a recourse or non-recourse loan, is taxed as ordinary income. There are, however, some exceptions to this rule that may benefit a taxpayer involved in a short sale. For more information on the tax implications of short sales, see the CAR legal article 'Taxation of Foreclosures, Deeds in Lieu of Foreclosure and Short Sales.'
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