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Helpful information about real estate transactions, short sales and foreclosures. Wednesday, June 23, 2010. Income Tax Liability in Short Sales and Deeds in Lieu of Foreclosure. If your lender agrees to a short sale or to accept a deed in lieu, you might have to pay income tax on any resulting deficiency. In the case of a short sale, the deficiency would be in cash and in the case of a deed in lieu, in equity. 8226; Loans for your primary residence. If the loan was secure.

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