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Short sale taxes on investment property, proving insolvency?

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Short sale taxes on investment property, proving insolvency?

Post  jamesscot84 on Sat Jul 14, 2012 6:52 am


Hi, two months ago I did the closing on the short sale of an investment property I used to own. Prior to sale of the property, my net worth might have been about $10K in assets & $20K in a 401K account. The property was sell short by $110K. My question concers the tax liability on this. I think I was insolvent at the time of the closing, meaning that I would owe the IRS on taxes for this year, more than my total assets value. Right after the closing I started investing most of my cash in the stock market and I've made a few thousand dollars in profits. Are these post-short-sale winnings going to be affect my insolvency for the sale of the property? I think I read somewhere that one needs to prove insolvency right before the short sale took place. Is that so? Thank you!

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