Disclaimer: Our firm is not an accounting firm nor does it specialize in tax law. The following article is intended as general information. If you believe you may be facing an issue, our advice is to consult with a tax attorney or certified public accountant for clarification and guidance.
Many property owners who are facing foreclosure, a short sale, or a deed-in-lieu of foreclosure ask the same question: “How will I be taxed if I should allow the property to go through the process?”
The short answer is you will probably be exposed to some tax liability.
Typically, when your debt is cancelled through a short sale or deed-in-lieu by the creditor, it will result in ordinary income to you, the debtor. This is the general rule, although there are other tax considerations that can potentially offset this rule. As of this writing, the state of Florida is a recourse state, which implies that a foreclosure which results in a deficiency could be collected and/or considered taxable as well.
When facing a foreclosure, short sale, or deed-in-lieu, it is always recommended to consult a Florida real estate attorney for advice regarding the effects of such a procedure. It would be wise to discuss the effects that you may face before, during, and after the procedure, including but not limited to credit rating, judgements, and tax implications.
The Law Office of Donna Hearne-Gousse