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If I sell my home on a short sale do I have to pay taxes on

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the difference on what I...
If I sell my home on a short sale do I have to pay taxes on the difference on what I owe and what it sells for and do I still have to pay back my first time home buyers loan.
Submitted: 6 years ago.Category: Tax
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9/2/2011
Tax Professional: Tax.appeal.168, Tax Accountant replied 6 years ago
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,023
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Hello, THANK YOU for choosing Just Answer. My goal is to help make your life...a little...LESS taxing.

The difference between the selling price and the amount owed is considered canceled or forgiven debt. SEE BELOW:

To the extent that a loan from a lender is not fully satisfied and a lender cancels the unsatisfied debt, you have cancellation of indebtedness income. If the amount forgiven or canceled is $600 or more, the lender must generally issue Form 1099-C, Cancellation of Debt, showing the amount of debt canceled. However, you may be able to exclude part or all of this income if the debt was qualified principal residence indebtedness, you were insolvent immediately before the discharge, or if the debt was canceled in a title 11 bankruptcy case. See Below and Form 982 for details.

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Mortgage Forgiveness Debt Relief Act.

This provision applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.

More information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments. Also see IRS news release IR-2008-17.

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Link to IRS webpage

http://www.irs.gov/individuals/article/0,,id=179414,00.html
---------------------------------------------
Regarding the loan, who did you receive that through? Are you referring to the first time home buyers credit that was given by the IRS? Please advise.

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Customer reply replied 6 years ago
Yes I'm referring to the first time home buyers credit the one that has to be paid back
Tax Professional: Tax.appeal.168, Tax Accountant replied 6 years ago
Hello again,

In brief, if there is a gain on the sell, you repay the credit only up to the amount of the gain, if any. If there is no gain, it doesn't appear that you will have to repay any of the credit. Refer to the following webpage for more detailed information:

http://www.irs.gov/newsroom/article/0,,id=206292,00.html

-----------------------------------------------------

SEE BELOW:

*If you sell your main home to an unrelated person or entity, you repay the credit only up to the amount of gain, if any, on the sale. Note: when calculating gain or loss on your main home if you received the credit, you reduce your basis by any remaining amount of the credit. See Publication 551, Basis of Assets, for more information.

Q. What are the exceptions where I may not have to repay the full credit?

A. The exceptions where you may not have to repay the full credit are:

If you (transferor spouse) transfer your home as part of a divorce settlement, your former spouse (transferee spouse) who keeps the home is responsible for making the rest of the repayments and you are not responsible for making any remaining repayments.

If your home is destroyed, condemned or disposed of under threat of condemnation and you purchase a replacement home within two years, you continue to repay the credit in installments each year.

If you lose your home in a foreclosure sale, you repay the credit only up to the amount of the gain.

If you die, no further repayments are due. If you claimed the credit on a joint return, your surviving spouse pays only his or her half of the remaining credit repayment amount.

*If you sell your main home to an unrelated person or entity, you repay the credit only up to the amount of gain, if any, on the sale. Note: when calculating gain or loss on your main home if you received the credit, you reduce your basis by any remaining amount of the credit. See Publication 551, Basis of Assets, for more information.

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