Our home was purchased for $575,000 in 2006 and we were underwater $200,000 when we did a short sale in 2013 for $375,000. The bank forgave $200,000 in debt but do we owe taxes in his amount? Is there a Loan Forgiveness Deduction available?
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Tax Professional Answers
Kathryn Morgan
As long as this was your primary residence and you had owned and lived in it for at least two years the you will probably qualify for the Use of the form 982 under the QPRD. Which means that as long as the debt cancellation was for a loan that purchased, built, or improved the residence that secured the note you should be ok. If the loan was used for other things, like bill consolidations, other non-residential purchases, etc, then the debt would not qualify.
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551 weeks ago