Short Sales Debt Relief & Taxes

short salesWhat does the Debt Relief Act of 2007  means to homeowners

For anyone considering a short sale, 2012 may be the time to really decide if this is for you. Why? Because the Debt Relief Act of 2007 will come to an end on December 31, 2012. This applies to any debt forgiven for years 2007 through 2012. Right now based on this law, any debt forgiveness beyond 2012 will be taxable.

The Debt Relief Act was designed for homeowners who lost their homes either to a foreclosure or short sale to have that debt forgiven and not taxed. Debt that is forgiven in normal circumstances is viewed as income and therefore taxable.  It only made sense that if people did not have the money to pay their mortgage, they were also not in a position to pay the tax on the forgiven mortgage by the banks.

Banks Offering Incentives to do Short Sales

Banks such as Citi, Chase and Bank of America are offering homeowners incentives to do short sales rather than let the house go into foreclosure. These incentives range anywhere from $2,500 to $25,000. You need to check with your lender to determine if they are offering any kind of incentive.

Also, be sure to check with your CPA to verify that you qualify for the tax relief.

Short Sales Take Time – Don’t Wait

It can take anywhere from 30 days to 4 months (sometimes longer) to have a short sale processed and closed. Therefore, if you are thinking or believe this is the route you wish to take, now is the time to act. Get your home on the market as soon as possible. Putting off listing your home will not prevent the inevitable and if things turn around you can always take the home off the market and catch up on the mortgage payments.

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