As a home owner who bought and sold at the top of the market, I'm paying for that through higher property taxes (almost triple what the previous owner paid for the same property). But that's small change compared to the tax bill some home owners will reap.
Well make that former homeowners. Contra Costa Times checks into the little known fact that even those who talk their bank into a short-sale might be stuck with having to declare that relief as taxable income.
“Homeowners should know that although debt can be forgiven, it’s never forgotten. When a short sale, deed-in-lieu agreement or foreclosure occurs and a residential lender loses money on a loan, the lender will most likely file the loss with the IRS, and the former homeowner may end up owing thousands of dollars in taxable income.”
“‘That’s probably where we see kind of the biggest surprise on the part of our clients,’ said Jackie Pearlman, senior tax research coordinator for H&R Block. ‘Not only are they not aware it existed but are very surprised to understand that it’s income. The concept is really alien to many people.’”
If this looks likely to happen to you make sure you consult a competent tax attorney prior to signing any papers with the bank.