What tax issues arise if I have to short sale a San Diego rental property?
The borrower/seller/landlord should be extremely careful in the short sale situation, as it requires delicate handling from many aspects. First, showing a property for sale when you have tenants can be an issue. Second, vacant/investor/rental properties often go to the bottom of the negotiator’s stack. And third, California has enacted laws that penalize a landlord for receiving rents that and not paying the mortgage. Investors are wise to discuss the tax consequences with a tax specialist or C.P.A. to make sure that the tax counselor has a plan to address the 1099-C issue in advance. If the 1099-C presents a problem for the seller, he or she should explore the use of IRS Form 982 in order to avoid or minimize any tax liability.