This week I attended an informative seminar led by the Miami Board of Realtors about short sales and tax implications. When sellers are considering short sales, it’s common to talk about the bank’s deficiency, but often less discussed is the potential tax implication. While a bank might forgive the deficiency, the seller might still be required to pay taxes on a certain portion of the amount being forgiven. For example, if you own a home with a mortgage AND line of credit and you short sell your house, you have to prove that all money used from the line of credit was used towards home improvements, like replacing your roof or installing a pool. However if money was spent on personal items like paying school tuition, that amount will be counted as income and taxed. The major lesson learned was when considering a short sale, speak to an accountant first to understand exactly what you’re getting into!
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