Client has jointly owned and occupied a personal residence (never rented) for a number of years and is now forced to sell. Has anyone ever heard the terminology of selling the house "short" and recording a loss? For personal residences,my understanding is that losses cannot be reported. Can someone please confirm. Thanks!

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Sounds like the sale is for less than the unpaid mortgage which is getting pretty common today and gives rise to the term "short sale". It will result in a 1099C Cancellation of Debt issued by the mtg company next year to the sellers, but under legislation passed by Congress last December and sign by Pres. Bush, the forgiven debt may be exempt from income tax. There are some qualifications to be eligible but the purpose is to relieve the homeowner from being taxed on forgiven mortgage on their primary residence. Does not apply to business property.

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PB in NJ -- Thanks for the quick response. Per your response, the cancellation of debt may not have to reported in income, which is a good thing --- but there are no losses that can be deducted -- correct? Thanks!

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That's correct - no loss can be claimed. It is a personal and not business or investment asset.

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THANKS!

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