Thinking of selling your home as a short sale or know of someone wanting to do one? There is a huge tax relief act that is set to expire at the end of 2011. The Mortgage Debt Relief Act of 2007 has typically allowed taxpayers to not be taxed on the debt forgiven when a short sale is completed on their principal residence. Usually when a debt is forgiven, the taxpayer who was given the relief will have to pay tax on that amount.
There has been a provision that applies to debt forgiven in calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. For more information, including detailed examples can be found in Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.
With short sales typically taking 4 to 6 months to complete, I would not waste anytime in getting your home listed for sale. If you have more questions on the short sale process or want to discuss any real estate questions you have, please contact me anytime at 248.939.9393 .