February 2012 Market Update
2012 – Year Of The Short Sale – Get Started Now!
By Phil Buoscio – Managing Broker
2012 is an important year for those of you considering short selling your home or investment property. Why? Because the Mortgage Forgiveness Debt Relief Act of 2007 may allow you to short sell your home with zero tax consequences. While not everyone will qualify under this act, there’s a very good chance that you will. Why is this important? This act expires in December of this year! Talk to your accountant.
A typical short sale usually requires 3 months to close at a minimum. It’s February 15th. That means in a best case scenario you could close a short sale by May 15th. Remember this is best case. Reality is many short sale drag out past 5 months and sometimes even 9 months. So a short sale taking 9 months to close would close on November 15th, 2012. Now that’s cutting it close if you ask me.
Check out this story from the Chicago Tribune on this issue and the Mortgage Forgiveness Debt Relief Act of 2007.
Trib Story – Mortgage Forgiveness Debt Relief Act of 2007
Procrastinating on short selling could mean the difference between being free and clear of your home or owing the IRS thousands. I personally hope this act gets extended, but at this point it time it hasn’t. While it may seem like 10 months is a lot of time, the tax-free window of opportunity to do a short sale is closing faster than you think.
Check out this example of how this act would effect a homeowner:
Let’s say a house sold for $100,000 and owner owed $200,000. That $100,000 difference is a loss to the bank. The bank writes that loss off and in turn the IRS will treat that $100,000 loss the bank took and apply it as income to you. So let’s assume this is an owner occupied house. Let’s say it closed November 15th, 2012. As an owner occupant, no taxes would be owed to the IRS on the $100,000 that is considered income from the short sale.
Now let’s say the Act doesn’t get extended. The house closed January 5th, 2013. Even as an owner occupant, you would be on the hook to pay income tax on that $100,000. You can do your own math, but even in the 15% tax bracket, you’re going to take a pretty big tax hit.
Finally, before deciding to short sell your home, contact a qualified tax accountant. Here’s a link from the IRS on the Mortgage Forgiveness Debt Relief Act of 2007 where you can get a better idea of the guidelines to qualify. Investment properties can also be sold tax free as well if you’re insolvent. Again, please speak with an accountant to find out if you are insolvent.
If you want more information on the short sale process, check out my short sale blog at www.ShortSaleSuperMan.com There you will find hundreds of articles loaded with everything you would ever want to know about a short sale. There’s also many real life scenarios that you might find are similar to you or someone you know. Or call me directly at 312-953-6725. My consultation if free and private. Please remember that not everyone is a candidate for a short sale. Generally there must be some financial hardship to justify a short sale to your lender and even then your lender may not approve a short sale.
