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Is My Short Sale Gain Taxable?

Information for Sellers

Is the sale of my home in a short sale transaction taxable or is it not?

Generally short sales on your main home are not taxable depending on the nature of the loan and the use of the home. If the loan is a non recourse, where you are not personally liable for the loan, there is no ordinary income from a canceled debt recognized by the  I.R.S. and there is no recognized taxable gain provided that the subject property qualifies as your main residence. The sale of your main home due to foreclosure or repossession is generally treated the same way as a conventional sale. The only difference is that the amount of the canceled debt is considered to be the sale amount or the realized amount. In other words the loan amount due at the time of the short sale or the foreclosed property is transferred is considered to be the sales amount. More on short sales below. 

You may have a taxable gain if the gain is more than $250,000.00 if you are single or if your gain is more than  $500,000 if you are married and your home qualifies as a main residence. 

In the state of California most loans that are secured by a main residence are non-recourse loans and are not subject to the canceled debt rules. Please contact us for more details

The adjusted basis should not be confused with the fair market value.