Alpharetta Buford Dacula Roswell Suwanee GA Short Sale Foreclosure – Depending on who you are, when someone mentions IRS, it instills fear in most taxpayers. Here is our opinion on the whole forgiveness thing. Please note that all of the info stated below is my personal opinion on this subject. This is not legal or accounting advice. You should talk to a competent legal or accounting professional before making any decision.
You will have Forgiveness of Debt Tax Liability whether you give the house back to the bank or do a short sale. It’s true! Before I first started doing short sales, I thought that if the bank foreclosed on your house, you wouldn’t get a tax hit. However, I did think that you would get a tax hit with a short sale. So why do a short sale if you then have to pay taxes on the bank’s loss? Little did I know that you get hit with the tax liability whether the bank forecloses or you do a short sale.
The government sees it as money you received and never paid taxes on. If you lose a home thru foreclosure, it goes back to the bank and the bank then resells it. However, the amount of supposed debt being supposedly “forgiven” will be much bigger. Why? Because the bank will lose a lot more money. Take the case of a homeowner that Countrywide turned down for a short sale. The agent presented them an offer of $385,000, but they rejected it. The bank thought they could get more money after foreclosing on the house and then re-selling it.
However after foreclosing on the house, the bank was only able to re-sell it for $230,000. This left the homeowner’s with over $210,000 in debt being forgiven. If the bank had taken their original short sale offer, they would have only had $35,000 in debt forgiven. That’s a big difference, right?
Now, here’s the good news. The Mortgage Forgiveness Debt Relief Act of 2007, changed all that. Normally, when a lender decides to forgive all or a portion of a borrower’s debt and accept less, the forgiven amount is considered as income for the borrower and is liable to be taxed.
However, after the signing of the Mortgage Forgiveness Debt Relief Act, amendments have been made to remove such tax liability and allow the borrower and lender to work freely together to find a common solution that is beneficial to both parties. This protection is limited to primary residences — rental properties are ineligible for relief — so consult with a tax advisor. The amount of forgiven mortgage debt allowed to be excluded from income tax is limited to $2 million per year.
Here is one good thing that comes out of this whole tax thing. It give you lots of ammo to hold off the bank from collecting a deficiency judgment from you. If your bank files a 1099 for the lost income after you do a short sale, then they cannot collect money from you after that. And you can easily get rid of that tax liability by filing a Form 982 with your tax return.
Click here to view the article, Mortgage Workouts, Now Tax-Free for Many Homeowners; Claim Relief on Newly-Revised IRS Form
Thanks for reading this, Roland Lorans.
Roland is a real estate agent at Better Home and Gardens Real Estate Hetro Brokers.
Phone: (770) 866-2561.
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Roland Lorans specializes in loan modification assistance and short sales in Alpharetta Georgia . Alpharetta Loan Modification Help, Alpharetta Short Sales.
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- Buford Georgia If Facing Foreclosure or Short Sale Be Careful Watch out for Bad Guys Talk to a Real Estate Professional (gashortsalepro.wordpress.com)