Short Sale Expert Advice, Short Sale Agent, Short Sale Negotiation
When your lender approves your San Jose Short Sale, the amount of short funds will be reported to IRS using a 1099 form which has tax implications. The amount reported on the 1099 form to IRS is called the Forgiven Debt or Deficiency Judgment.
For example, when a home with a loan balance of $500,000 is sold for $400,000 as part of a Short Sale; the lender can issue a Deficiency Judgment against the seller for the $100,000 they lost as part of this transaction. However, home owners are still protected against deficiency judgment after a Short Sale in 2013. But these protections are renewed annually and there are no grantee that they will be approved each year.
In fact, California’s SB30 passed by a narrow margin this year and with the conversation about Fiscal Cliff in DC along with the improving economy, the chances of the home owners getting stuck with the tax bill are good. That’s why we always recommend our clients to discuss the Tax implication of their Short Sale with your CPA or Tax Planner.
The Mortgage Forgiveness Debt Relief Act of 2007 provides an exception from Federal taxation if the Short Sale of your home meets the following conditions:
1) property must be a qualified Primacy or Principal Residence as defined, by IRS Rules which typically means you must have lived there for the past 2 years.
2) loan is secured by the residence. This means that loan will show up on the Property Profile with the lender as the beneficiary.
3) Your income is capped at $1,000,000 for married couples filing separately and $2,000,000 for all others income categories.
4) loan is discharged after January 1, 2007 and before January 1, 2013.
But the State income taxes for the forgiven debt might be different in the State where you are located. In fact, since most State are suffering from budget short falls, some have been reluctant to create legislation to protect the troubled home owners and need taxes to be paid on the difference between the Short Sale transaction and the loan amount.
Bottom line is that you are well advised to Dept of Housing and Urban Development to discuss the tax implication of your Short Sale in the State where your property is located.
And Contact Us if you have any question on your Short Sale.
[maxbutton id=”2″]