Is the difference between the selling price and the mortgage considered capital gain in a short sale? Will the home owner have to pay taxes on the difference?
In short no. Any capital gains is calculated by the sales price (less selling costs such as commissions) less the amount invested (amount paid plus documentable improvements). How much the property was mortgaged for has no bearing. On a short sale, the seller still has a sale amount even though that amount is lower than the mortgage. The one thing I am not sure of is whether the difference in the mortgage (the higher amount in a short sale) and sales price is taxable. You should consult a good CPA on that. I hope this helps.
Sincerely,
The Mortgage Buyer
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