Current Updates

Short Sales and Foreclosures of Real Property Holdings

With the severe decline in the real estate markets throughout Nevada and around the country, many of our clients, their family members and friends are facing issues regarding potential short sales or foreclosures of real property holdings. Over the past few years, we have spent a great deal of time researching the various issues from a tax perspective associated with short sales and foreclosures of both primary residence property along with investment and rental properties. As we work with clients on the various aspects of decisions they face regarding whether to pursue a short sale or foreclosure and how to determine which option may be the right one for them, we have found that every situation has a slightly different twist. Therefore, if you are facing such a decision or know of anybody who might be looking into a short sale or foreclosure, we highly recommend that you encourage them to seek out tax advice prior to going down that path.

The topic of short sale and foreclosure has become so commonplace within the general population today that there are many myths that circulate amongst our clients regarding the tax implications of a short sale or foreclosure. We have met with several clients who are of the impression that a cancellation of debt associated with their primary residence on a short sale or foreclosure was tax free due to special legislation passed a few years back by Congress that is in effect through 2012 relative to cancellation of debt on primary residence property. We have found in a few instances that the provisions of that legislation do not apply to certain clients, only to deliver the difficult news that a tax liability had been incurred without the prior knowledge of the taxpayer. We have also found, especially with regard to income property, that many of our clients are eligible for tax refunds associated with the tax implications of a short sale or foreclosure, especially if they acquired the income property as the real estate prices were rising in the mid 2000′s. This has been a pleasant surprise for many of our clients.