TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, January 7, 2014

Wright: Short Sales as Nonrecourse Mortgages

Tax Analysys Logo (2013)Kathleen K. Wright (Golden Gate), Short Sales as Nonrecourse Mortgages, 71 State Tax Notes 27 (Jan. 6, 2014):

Short sales in states that have enacted anti-deficiency statutes can now be treated as nonrecourse mortgages if the state statute bars collection of a deficiency balance by the lender after the borrower and lender agree that the lender will accept a loan payoff for less than what is owed on the mortgage and release the lender's security interest in the property. In a letter from the IRS to U.S. Sen. Barbara Boxer, D-Calif., released to the public in November 2013, the IRS concluded that an obligation involved in a short sale would be treated as a nonrecourse obligation under California Code of Civil Procedure (CCP) section 580e for federal income tax purposes. This disclosure was followed by a letter from California Franchise Tax Board Chief Counsel Jozel Brunett to California State Board of Equalization member George Runner, dated December 4, 2013, wherein the FTB stated that they would conform to the federal guidance. This result could provide significant tax benefits to clients who engaged in a short sale of their homes.

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