This email on Taxation of Foreclosures and Short Sales, is one in a series of three that I am sending you (with attachments) that pertain to this topic as well as an overview of the new 3.8% tax.
Please print each of these, read them and ask your manager any questions that you might have. As these will also be subjects (some of them for a second time) in upcoming sales meetings it will also help to have read them.
One very important reminder (and the thought that encouraged us to send these emails/attachments out) is that we have to be exceptionally careful to never give our clients inaccurate or misleading (ignorance will not be an excuse) information. For example, although the Federal decision to extend the Mortgage Debt Relief Act has been announced, California (to date) has not yet agreed to do the same - and may not! Therefore, if a client asks if they are liable for taxes on their short sale (if the forgiven debt was purchase money or "non-course debt"), the correct answer is although they may not have a federal tax liability, unless California decides to follow suit with the Federal guidelines, they currently will have a state liability for ordinary income tax on the forgiven amount. Part two of our response is that "We are not tax or legal advisors and I must advise you to seek appropriate guidance from a tax professional such as an accountant or attorney to discuss potential tax liability and any other consequences".
This attachment also covers the fact that sellers are still responsible for paying capital gains even in the event of a deed-in-lieu, short sale, or foreclosure of their property!!
Again, please take the time to read the enclosed and the other emails to follow. Doing a great job for our clients means happier clients and more business!
Good luck!
Patrick
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