Income Tax On Short Sales & Foreclosure Sales; Exceptions to The Rule

(last revised 8-20-07)
A recent article appearing in The Washington Post explains how the amount of taxable income is calculated when financially strapped homeowners either lose a home to foreclosure, or sell a home for less than the existing outstanding balance on their home mortgage, known as a "short sale." Included in the article is a reference to two of the exceptions to the rule that will allow a homeowner to avoid having to pay some or possibly all of the income tax on the amount of mortgage debt that is cancelled or forgiven - the bankruptcy exception and the insolvency exception. For more, see Selling at a Loss? Here's What to Expect From the IRS.

See also:

• Lose Home, Pay More Tax (As foreclosures soar, a cruel tax rule rears its head) (Kiplinger.com),
• IRS Publication 4681: Canceled Debts, Foreclosures, Reposessions and Abandonments.

For other posts on this subject, see:

• Dodging The Income Tax On Foreclosure & Real Estate "Short Sales"
• Debt Forgiveness On "Short Sales" Not Always Subject To Income Tax
• Foreclosing Mortgage Lender Screw-Up Results In Whopping IRS Tax Bill For Ex-Homeowner