The Lawyer is Wrong – Real Estate Short Sales and Income Taxes
Take that Home Off the Market Immediately!
The Daytona Beach real estate market is tough, but bad advice can make it even harder. This morning I received a call from a client who is consulting with a lawyer on some other matters. He mentioned that he was in the process of selling his home using a short sale. The lawyer jumped and said get that home of the market – you will have to pay income tax on the amount of the loan that is forgiven by the bank.
Now, a short sale is when the bank accepts an offer than is less than the mortgage value. The bank will sometimes accept lower offers to prevent the expense of foreclosure. Before December of last year, the seller of the home could be required to pay income tax on the amount that the lender forgave. For example if the seller owed $300,000, and the bank accepted a short sale offer of $200,000, the seller could be required to pay income tax on the difference – $100,000.
In December of 2007, President Bush signed HR 3648 – The Mortgage Forgiveness Debt Relief Act of 2007 that for the next three years, eliminates the income tax on mortgage refinancing and short sales.
That means that the lawyer is wrong. I will post shortly on the advantages of short sales to buyers and sellers. In the meantime, you can contact me at 386-566-7503 or visit my Daytona Beach Homes for Sale website for more information. Sign up for an RSS feed to receive new posts in your RSS Reader (see left menu).
Quick Disclaimer: I am not a lawyer and I do not offer legal advice. For legal advice, see an attorney, but come armed with the best information that you can.