“In general, homeowners believe the government will extend this tax provision,” says San Diego Realtor Joy Bender. “However, as evidenced by the First Time Homebuyer Credit expiration in 2010, you can’t always count on the government to bail you out.”
The government generally considers forgiven debt to be income. If a seller has signed legal loan papers to take out a $200,000 mortgage and the lender accepts $100,000 in a short sale, for example, the seller received the equivalent of $100,000 in free money by government estimates. As a result, the IRS taxes it. For tax year 2012, however, the government still forgives the debt; in 2013, it might not.
The tax amount can be significant. On a debt of $100,000, a short-sale seller in the 25 percent tax bracket could end up owing $25,000 in income taxes.
Since short sales can take months and even fall through, homeowners considering a short sale may want to start the process sooner rather than later.
Call The Mary Neilson Team for all your Fort Myers, Cape Coral, Fort Myers Beach, Estero and Bonita Beach real estate needs. Foreclosure and short sale experienced.
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