My buyers got a copy of short sale consent and had 2 inspections done at cost of $800. Before more inspections done, I got a call from the sellers' agent saying they may want to cancel as now they spoke to CPA and may have to pay IRS. How do we proceed?Can they do this or are they legally obligated to continue with the sale? Can we have them pay for the costs incurred by the buyers?
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Good question. The contract will dictate and remedies available to the buyer. but since it's a short sale there may not be much they can do.
The sellers should have wrapped their head around any tax ramifications a long time ago. Like prior to placing the property on the market.
Unless the sellers have lots of assets the chances of them paying taxes on a short sale are pretty close to nil****.
If this is truly the only reason they want to cancel then they need to seek an opinion from another tax professional that is familiar with short sales. In a nutshell: The lender claims their loss as a loss and therefore it becomes income to the borrower. The borrower has to declare this income and writes off their loss as a loss. So... 2-2 still equals 0
Is their intent to just keep the house? The reason I ask is that a foreclosure or DIL will have the exact same tax issue, if any.
****Of course I am not a tax professional nor do I play one on TV. This is just my opinion based on my own research and experiences.