When a homeowner sells their home via a short sale and the lender waives the deficiency balance for a homeowner, it’s considered a “taxable event”. The lender informs the Internal Revenue Service about the agreement by submitting a “Form 1099-C” (Cancellation of Debt). Normally a home seller would owe taxes on the “income”, but the Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence through Dec. 31, 2012.
The tax burden can be significant. On a debt of $200,000, a short sale seller in the 25 percent tax bracket could end up owing an additional $50,000 in income taxes. For someone who is likely already in financial distress, this could be a disaster.
If you have been considering a short sale… Take action now! Since short sales can take several months and even fall through before being successful.
Want to read more about the Mortgage Debt Relief Act?
Additional Short Sale Resources
- The Secret To A Successful Short Sale
- 7 Reasons To Avoid Foreclosure
- Strategic Default = Foreclosure
- Want a Short Sale? Guess What Your Mortgage Company Wants to Know…
- 5 Truths about Short Sales
- Buying a Short Sale? Is Your Agent an Expert?
- Buying a Short Sale? Buckle Your Seat Belt
Ready To Start a Short Sale?
If so, contact our expert Lake Mary real estate short sale team here at MoveToLakeMary.com to schedule a free consultation today!