San Diego Short Sale 1099 Federal & California State Tax Liability

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The IRS allows an investor in San Diego to write off the entire loss they incur when you short sell your home. You will receive a 1099-C (cancellation of debt) form prior to filing taxes in the coming year.

The Mortgage Tax Debt Relief Act was put into effect to protect the consumer from any tax liability on the loss if it was a purchase money mortgage. It has been extended through the end of 2012. California passed The Conformity Act of 2010 applying to CA state income taxes on a short sale.

These laws are for purchase money mortgages. It would include a home equity 80/20 or 90/10 financing structure taken out at time of purchase. This does not include a mortgage that was a cash out refinance, or any secondary liens not taken out at the time of purchase. However, if you can prove through receipts that the proceeds from the cash out refinance or secondary liens were used to substantially improve the property, you would be excluded from liability

If your property is a vacation or investment property in San Diego, it is a taxable event unless you qualify for insolvency. Insolvency is where your debts exceed the value of all of your assets.

We recommend you review your specific circumstances with your accountant or I’d be happy to refer you to an accountant in San Diego that specializes in real estate and short sales.

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