Are you a Short Sale seller?
Have you recently sold a home in what is deemed a Short Sale process? Or are you soon expecting to enter into such an arrangement with your lender?
It’s possible that your lender may not have advised you that the difference between the current mortgage balance and the eventual sale price will not simply be forgiven. The lender will produce an Internal Revenue Service Form 1099-C and report this amount to the IRS as “income.”
CHECK OUT our short 13-minute YouTube video on the topic. You can watch it by clicking this link.
It’s true — the difference, referred to as the “mortgage gap” will be considered income and, if you are a U.S. Taxpayer, you must add this to your Form 1040 income-tax return for the Tax Year in which the sale was finalized.
This comes as a surprise to many and can easily add up to over $100,000, depending on your individual circumstance.
One tax option that your lender likely will not discuss with you is to permanently remove yourself from the U.S. Tax Club — called the Revocation of Election. This legal process eliminates the need to ever file and pay the U.S. Federal Income Tax (for the current tax year plus all future years). This, of course, would include any Form 1099 data reported to the IRS. More information on the Revocation of Election process can be obtained here.
This is a process provided by the U.S. Congress, though as you may guess, they’d certainly prefer you not know about it. Nevertheless, it is an option provided to you, and the stress from your Short Sale might have prompted you to seek alternatives to paying tax on this onerous and unexpected sum.
Please carefully read the information on the Revocation of Election page — there is also a separate YouTube video, the link to which is accessible near the top of that page. You may also want to learn more about this topic, and additional information can be obtained on the following pages on our site: Jurisdiction and Nonresident Alien. These are important topics to comprehend as you move forward.
If you wish to move forward, we can supply you with the Revocation of Election document, along with detailed instructions as to its use. After the lender has sent the Form 1099-C (should be around Jan. 31 of the following calendar year) and you receive it, please send us a PDF file of that 1099-C and we will provide you with a corrected version of that form, along with instructions.
If you have any questions, please email us at email@example.com.