A Short Sale happens when the sale of a property results in the net amount being less than the amount due to the lender. The lender or bank must agree to the short sale. The bank or lender may agree if the bank or lender is trying to recoup an amount that is owed to them.
A short sale is a contract to sell property you borrowed for delivery to a buyer. At a later date, you either buy substantially identical property and deliver it to the lender or deliver property that you held but did not want to transfer at the time of the sale. Usually, your holding period is the amount of time you actually held the property eventually delivered to the lender to close the short sale. However, your gain when closing a short sale is short term if you:
- held substantially identical property for 1 year or less on the date of the short sale, OR
- acquired property substantially identical to the property sold short after the short sale but on or before the date you close the short sale.
If you held substantially identical property for more than 1 year on the date of a short sale, any loss realized on the short sale is a long-term capital loss, even if the property used to close the short sale was held 1 year or less.
For information on reporting your Short Sale, visit our Knowledgbase.