Short sales carry tax consequences that can be avoided

Short sales can be a way out of a bad situation for homeowners.

The bank allows you to cancel some of the debt between what you owe on the house and the sale price.

The ABC15 Investigators get many questions about short sales, including how long they take.

Experts say the goal is to have it wrapped up in three months.

However, many tell the Investigators it takes much longer.

We recently received another question about what happens after a short sale.

It comes from the ABC15 Facebook page .

Debra Caton asks, "How do you file your taxes after a short sale?"

What you may not know is that even though the bank will cancel debt, that amount is seen as income.

Therefore it is taxed.

Brian Gubernick is with Keller Williams short sale team and says you'll receive a 1099 form that must be filled out.

It is used to report certain kinds of income, including the debt cancellation amount and it must be filed with your taxes.

Gubernick advises that you speak with an accountant about ways to lessen the tax burden.

The Mortgage Forgiveness Debt Relief Act of 2007 offers help if your home is a principal residence.

You can see all of last Thursday's questions and answers concerning short sales and foreclosures on ABC15's Facebook wall .