Knowing your short sale

Short sales maybe the only option for some homeowners and there is a lot of information the homeowners need to know.

Below is a quick overview of some key factors.

When you owe someone money and they cancel the debt, you can be taxed for the cancelled or forgiven debt. For example, if you owe $20,000 and the lender accepts $2000 to “settle” or pay off the loan, you can be taxed on the remaining $18,000 that was cancelled. This $18,000 can be considered taxable income because it was money borrowed that you are no longer required to repay.

The Mortgage Forgiveness Debt Relief Act was enacted December 20, 2007 to assist homeowners with the tax implications that may occur from cancelled debt. This Act applies only to “forgiven or cancelled debt used to buy, build or substantially improve your principal residence, or to refinance debt incurred for those purposes.”

In short, the Mortgage Forgiveness Debt Relief Act generally allows taxpayers to exclude income from the discharge or cancellation of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.

What does this mean for you?

If you have spoken with your lender and are unable to save your principle residence from foreclosure, you may qualify for a short sale. In this way you are able to control the disposition of your home and reduce the financial liability it may incur. You are able to then settle the debt with your lender and avoid the devastating foreclosure consequences on your credit. You may also be eligible to avoid the taxation consequences on the forgiven debt through the Mortgage Forgiveness Debt Relief Act.

If you are facing foreclosure and the home is not your principle residence, there are other options to avoid the tax implications. These options will be discussed in the future.
To verify what the legal ramifications or tax implications may be, consult your local CPA and attorney.

For further information regarding the foreclosure process or the short sale of your home you can email: Britt@TeamWorksFla.com or call (941) 526-9341.
We are here to help you with all of your real estate needs.
Britt