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April Is National Fair Housing Month
Home short sale tax: Buyers need not to worry. Sellers still do.
is pretty straight forward if you are the buyer: There is nothing to
fear because there will not be any taxes due at closing nor any point in
the future – regarding to the purchase of short sale home.
Naturally there will be your normal taxes but nothing in there has anything to do of whether or not your home was acquired via a short sale.
Nothing. Nada. ZIP. And please do not let anybody fool you and put any kind of doubts in your mind that would prevent you from acquiring a nice home for fear of additional tax burden on you: Buyers of short sale home do NOT incur any additional taxes.
So you can buy with confidence that the tax man will not try to bite you because you bought a short sale.
Home Short Sale Tax For The Seller Carries A Bit Of Concern
First of all, Lenders have to agree to take a loss.
It used to be a rarity – if ever -- for a lender to agree to a short sale, foreclosure was the instrument of choice.
At the time of this writing, however, short sale is one of the leading fashion in which properties are exchanging ownership.
Before the actual sale to take place, the lender has to agree to take a loss on their books and eventually to release the borrower/seller of further obligation.
That is what makes this instrument rather complicated.
In some “deficiency states” the lender could come after the borrower/seller other assets and/or issue a capital gains via a 1099 FORM that would put the seller in a unenviable position of having to face paying income tax on an asset that s/he has already lost her/his shirt.
So indeed this one those situation that some intervention is called for and I think the government has an important role to play in helping us out of this quicksand scenario the housing market has falling into.
The Mortgage Debt Relief Act Of 2007
Is an instrument that has open a tremendous window of opportunity to allow home owners that are under water on their mortgage to able to sell their homes – with the agreement of the lender -- for less of what they owe and NOT be taxed on that difference being forgiven.
Technically any amount of debt that is forgiven can be viewed as a “gift” by the lender and, consequently they could issue a Form 1099 to offset the amount from their books.
However due to the already long housing downturn, one the instruments the government has put forth is the Mortgage Debt Relief Act of 2007 which gives a break on the home short sale tax.
It exempts of any taxes the values shown in any real estate transactions where lender may show payment deficit due to a short sale, mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure.
However, unless congress reauthorizes it, it will sunset at the end of December 2012.
So that is something very important to keep an eye because of the political climate going on right now it might not be renewed.
All the while, please keep in mind that you – the buyer – have no implication whatsoever on your short sale home tax.
No matter what the political winds your side does not get affected.
And your title will be received “free and clear” as it should be.
JC Fagundes, Head Broker
EQUAL SERVICE TO ALL.
Residential. Commercial. Investments.
Ph: 404 801 4141