Since 2007, homeowners whose banks have forgiven unpaid mortgage debt after a short sale, principal reduction or foreclosure have not had to count that money as income on their tax returns. It’s meant savings of tens of thousands of dollars on the so-called “phantom income” depending on the amount of debt canceled and a person’s tax bracket. But the Mortgage Forgiveness Debt Relief Act of 2007 will sunset Dec. 31 2012
Accountants and Realtors are urging homeowners considering a short sale to put their properties on the market now so they can sell before year’s end. A short sale is where the lender agrees to sell a property for less than what the homeowner owes on the mortgage. Banks are getting better at processing short sales, finalizing a contract can still take months
For Example: Bob Homeowner listed his home for a short sale with a good Realtor after researching the best exit strategy from his underwater mortgage. He quickly had a full price offer of $105,000 and is currently under contract.A successful sale will leave him with $118,000 in unpaid loan debt. If the bank forgives that balance, the money is taxable income. Considering Bob’s tax bracket, he would owe about $29,500 in taxes on that canceled debt. Under the debt relief act, he won’t owe anything.
People selling their homes through a short sale or who are in foreclosure may have the unpaid balance of their loan forgiven by the bank. If so, that debt would be considered taxable income. The Mortgage Forgiveness Debt Relief Act excludes that income from being taxed through Dec. 31, 2012. If you are considering a short sale, you may want to put your home on the market now so a sale can close before the end of the year and qualify you to take advantage of the debt relief act before it expires.
A bill called the “Homeowners Tax Fairness Act” was filed in March that would extend the tax debt forgiveness program through 2015 if passed. It requires congressional approval.
If you want to find out more about Short Selling your house rather than facing foreclosure and the bankruptcy that often accompanies foreclosure contact us Claudio and Robyn Petasne at 954-260-5570.
As experienced Professional Realtors with Keller Williams Realty we have the knowledge and experience to help you through this financial struggle. Short Selling is a much better option than foreclosure for many reasons.
Please call to discuss how we can help you. You can also get more information at our Short Sale website www.AvoidForeclosureinWestBroward.com
Professional Realtors are your best resource for Avoiding Foreclosure!