Short Sale Tax Relief

If you’ve been following the fiscal cliff, and everything else you’re supposed to be worried about, you may have also heard that the Mortgage Forgiveness Debt Relief Act that President Bush signed into legislation back in 2007 was set to expire at the end of 2012.

The act basically allowed those that lost their primary residence through foreclosure, or sold it through a short sale, to be relieved of paying federal income taxes on the amount forgiven by their lender.  So if your mortgage lender sent you a 1099-C (Forgiveness of Debt) statement showing that $50,000 was forgiven, that amount would in years prior have been treated as an extra $50,000 that you earned that year, and that you were now required to pay taxes on to the IRS.  For most that gave up their property to foreclosure or short sale, it was a lack of income that caused the problem in the first place, and adding insult to injury with a huge IRS bill would send many to bankruptcy.

So the legislation made good sense when it was enacted, and you’re likely aware that we’re not totally recovered just yet, so it still makes sense today.  Thankfully the new deal cut just a few days ago will allow for the extension of the tax relief through 2013 – it is now set to expire on January 1, 2014.  Check out Section 202 of the American Taxpayer Relief Act of 2012 (see page 25 of 157 pages).  At least they got this right!

If you are in the midst of a short sale or are considering one, this is a HUGE RELIEF.  But short sales are far from short, so make no mistake, time is of the essence and you need to push forward right away as there’s no guarantee this will get another extension.

One of the bigger challenges many sellers face in a short sale is finding a solid buyer that’s willing to wait out an approval letter from the bank.  We’ve seen this take from 4 months to over 2 years!  Very few buyers are going to still be around after that length of time, and who can blame them; they have to get on with life and take care of their families – they can’t gamble on what a bank may or may not do, no matter how good their offer is and how good it may be for all parties.  It turns out banks don’t always make the best and most timely decisions.

But not to fret, that’s where an experienced investor buyer can be exactly what you need to complete a short sale of your property.  We know how the process works, are willing to wait, and can navigate you through all the landmines presented.  So if the extension of the tax relief is a ray of hope, but you still need a buyer for your property, contact us and we’ll meet with you to determine how to move forward and get you real relief so you can build a brighter future in 2013!