As highlighted in Marcia Jacobowitz’ post on September 10, 2012, the short sale process will be expedited as of November 1, 2012. Unfortunately, the Mortgage Forgiveness Debt Relief Act of 2007, enacted on December 20, 2007, is about to expire. This IRS program effectively forgives persons who have debt forgiven in a short sale or mortgage restructuring from any income tax associated with such transactions. This program is currently set to end (as best as we can determine) at the end of 2012. Basically, a short sale seller may have to pay income taxes on the amount of mortgage debt that was forgiven by the lender after December 31, 2012. The amount of mortgage debt forgiven is typically the difference between what is owed on the mortgage and the ultimate net sale price of the property.
The Homeowners Tax Fairness Act has been introduced in Congress to extend this program beyond December 31, 2012. But as we are all aware, there is no guarantee the bill will pass.
Due to the length of time it takes to find a buyer for your home and to get a short sale approved, the time is running out to get a short sale completed prior to December 31. Thus, if you are contemplating a short sale, now is the time to act.
See the following links for more information on this program:
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation
IRS Publication 4681, “Canceled Debts, Foreclosures, Repossessions and Abandonments,” is available for use in preparing the 2011 tax returns. (Presumably, the 2012 version of the publication will be out in due course.)
William E. Duquette, Jr. is an associate on the firm’s Real Estate Team. He can be reached by phone at 845-778-2121 toll free or 845-778-2121 and by email.