There are tax implications to a real estate short sale. It is possible that many short sellers are not aware of those implications. Chances are those implications would influence a distressed homeowner’s decision, but it is important that any homeowner know all of the ramifications to any real estate finance or refinance.
There is speculation as to how much litigation will occur down the road because of these tax implications.
Homeowners who refinanced their homes, spent that equity outside the home, and then short sold them are the ones who will suffer the most financially in the tax assessments. The federal Mortgage Debt Relief Act of 2007 allows for debt forgiveness of taxable income when the debt is forgiven on your principal, primary residence up to $2 million, according to the Internal Revenue Service. This includes funds used to buy, build or substantially improve a principal residence. IRS experts believe that monies taken out of a primary residence in a refinance and then used for purchases other than investment in that primary residence, will face significant tax liability.
Debt used to refinance qualifying debt is eligible for exclusion from taxation, but only to the amount of the old mortgage principal just before refinancing, according to the IRS. Teanslation: subtract the principal at the time of refinance from the totasl refinance amount.
Debt forgiven on second homes, rental property, business property, credit cards or car loans does not qualify for the federal tax-relief provision.
None of these tax experts see a tax liability if the property goes into foreclosure.
The homeowner may not be subject to tax liability if they can prove insolvency, meaning they cannot repay their debts as they are due.
The REST Report calculates Net Present Value, or NPV, which proves to your investor that short sale is more advantageous than foreclosure.
It will prove to a foreclosure judge that foreclosure should not be an option to your servicer, who has already calculated that foreclosure pays them more money than mortgage modification or short sale.
I am a proud vendor of the REST Report. Call me.
Here’s the Mortgage Debt Relief Act of 2007
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Originally posted 2009-12-21 20:52:00. Republished by Blog Post Promoter
