Do you own a home that is underwater? Having trouble making payments or considering walking away? I think every one of us has met or knows someone faced with the question about whether to stay or go, try to make it work or cut your losses. For those whose home is their primary residence, completing a short sale has become much less painful in the past year than it was previously. Lenders are more willing to work with you and until the end of this year the IRS has forgiven the difference on the debt for tax purposes.
What exactly does forgiving the difference on the debt mean though? Let’s say that you purchased a home for $250,000 in 2005 and obtained a mortgage for the purchase price amount; now that same home is now worth $75,000 and you short sell that home (or decide to walk away and let it foreclose) for $75,000. The difference between the mortgage amount and sale amount is $175,000 – can you imagine getting the tax bill for 175k?! (I can’t and don’t want to think about it either). Your tax bracket would determine the amount owed to the IRS, please speak to your tax professional about that.
So why is this important?? It’s important because the Mortgage Forgiveness Debt Relief Act expires December 31, 2012. If your primary residence is upside down or you are unable to make the mortgage payment a short sale may be the best option for you. 2012 will be a better year to undertake the short sale process as it does not appear the MFDRA will be extended again.
More information on MFDRA at the IRS website.
If you would like a private consultation to determine whether or not a short sale is for you, please contact me directly at 248.207.4445 or firstname.lastname@example.org.
**This information is not to be construed as tax advice. Please contact a tax professional to assess your unique situation.
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