Question by Ap: paying taxes on shortsale?
I purchased my home in the state of Virginia in 2006. I lived in it until 2009. I move out of state in 2009. I rented my Virginia home from March 2009 until Aug 2010. I just completed a short sale on the house for $ 63K less than I owe. The bank is going to forgive the debt. Will I have to pay tax on the forgiven debt because I rented my home for just over a year? Would the home be considered an investment property even though it was originally my primary residence? I do not own any other property.
Answer by the tax lady
do you have a recourse loan or a non-recourse loan?
Recourse means they could come after you for the difference and if they don’t, they issue ou a 1099-C.
You meet the definition of section 121, so you should qualify for the Mortgage Debt Relief act if a 1099-C is issued. See irs publication 4681.
What do you think? Answer below!