Discussion:Short Sale of Primary Residence and COD

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Discussion Forum Index --> Advanced Tax Questions --> Short Sale of Primary Residence and COD


Discussion Forum Index --> Tax Questions --> Short Sale of Primary Residence and COD

Taxaddict1 (talk|edits) said:

11 April 2014
Taxpayer short sold his primary residence in 2013. He received about $50,000 cancellation of debt. And since he had refinished before and had cashed out more than $50,000, this $50,000 COD is considered his income.

The property was short sold at a huge loss. but since it was his primary residence, he cannot claim the loss.

Therefore, he ended up having $50,000 income out of it.

So he is penalized for having used that property as his primary residence.

Have I missed anything?

Taxaddict1 (talk|edits) said:

11 April 2014
refinanced

Ckenefick (talk|edits) said:

11 April 2014
Have I missed anything?

Yes, your conclusion about fairness isn't all that accurate.

DaveFogel (talk|edits) said:

11 April 2014
I agree with Ckenefick. Many taxpayers refinanced the loans on their residences during the real estate "run up" and used the money to buy cars, boats, go on vacations, etc. Many refinanced every year, using their house like an ATM machine. Your client is being penalized for not using the proceeds of the refinance to make improvements. He's not being penalized for having used the property as his personal residence.

Wiles (talk|edits) said:

11 April 2014
I see you are in California, you may want to put your client on extension while the following issue gets sorted out: Discussion:IRS_Chief_Counsel,_"California_Short_Sale_=_Nonrecourse"

Or on the other hand, file now and claim this as "authority". Then when it gets reversed, keep your fingers crossed that your client is allowed amnesty.

EZTAX (talk|edits) said:

11 April 2014
Not to pile on but your premise that he was penalized for using the property as primary residence is not correct. Sound like the short sale price was the original cost so even if it had been used as rental there would not be a loss.

I don't think it is fair that taxpayers get hit with COD on their primary if they never pulled out money but in this case I have to agree with the other posters. He got money why wouldn't it be taxable? (I am assuming he is not insolvent.)

Taxaddict1 (talk|edits) said:

11 April 2014
Thank you for the replies.

I understand that the cash out from the refinancing should be taxed. I was just thinking it was unfair the huge loss from the sale is not non-deductible. But then I thought of the capital gain exclusion. So if the capital gain from the sale of his home would be non-taxable (up to $500k) , now I also agree it is only fair that the loss should be non-deductible too.

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