I Have Completed My Short Sale. Part 1 of 3: What Should I Do From Here?

You’ve finally made it through one of the biggest hurdles of your life. You are probably renting or staying with a friend or a relative. You have a ding on your credit score from the short sale and you may be worrying about tax implications from short selling your home. What should you do from here?

After you have finally completed your short sale, it’s time now to set yourself up for a healthy financial future. There are steps that Seattleshortsaleblog highly recommends for those who have completed their short sale and want to rebuild their financial situation and move toward their financial future and a new home.

Part 1 “I’ve completed my short sale. Won’t my short sale be taxable?”

Normally, yes. However, in response to the housing crisis we faced in the last 5 years and are still in, the government produced laws that allow homeowners to exclude discharged debt on their principal residence. This act is called: Mortgage Forgiveness Debt Relief Act of 2007.
How do you utilize this Debt relief act?
In January of the year following the mortgage termination, you will receive a 1099c. Be vigilant for any misinformation on the 1099-C and be especially attentive to the amount of debt forgiven in Box 2 as well as the value listed for your home in Box 7. Attach IRS Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness) to your tax return to exclude the debt from taxation.

The Mortgage Forgiveness Debt Relief Act has a Deadline!
The Mortgage Forgiveness Debt Relief Act is set to expire at the end of this year (12/31/12). We are hoping that this act will be extended as short sales and foreclosures are expected to remain at high levels through this year. I have recently called the IRS who notified me of some rumors that there may be an extension to this act. However, the risk is not to be taken lightly. If the act expires and you sell your home after January 1^st 2013, as of now, you will have to pay a substantial amount of taxes after the sale of your home.

If you haven’t began your short sale yet and are still deciding whether you should go through with it or not, be proactive and plan fast because the longer you wait, the worse your situation may become. If you are located in Washington, contact our certified distressed property experts today for more information on options for your home situation. Short sales take approximately 3 to 9 months or more to close. This year would be a prime time to start the process and close the short sale to avoid being taxed on income from the debt forgiven (they deem the debt amount forgiven as income) from your lender.

Next Post 1/11/12 Wednesday

Peter