One of the most common questions I get from Arizona homeowners thinking of doing a short sale is: “Are There Any Tax Ramifications to a Short Sale?”
Myth: If I foreclosure I won’t get a 1099. That is a myth. You will get a 1099 no matter if you foreclose or short sale.
Keep in mind that with a foreclosure your 1099 will be greater.
Finally, keep in mind that through 2012 you have no tax liabilities if you short sell your primary residence.