Will I Owe Income Tax After A Short Sale?
New Castle County, DE –
This is one of the first questions potential short sale sellers ask us. “I heard of something called “forgiveness of debt income and that it is taxable. How does that work?” they ask. The following article is my personal opinion only. I recommend that you consult with a competent legal or tax professional before moving forward with a short sale.
In most cases the answer is that a short sale will usually not cause you to owe income tax.
Discover how other sellers successfully did a short sale to avoid foreclosure by clicking here.
It used to be that you owed income tax on any forgiveness of debt. When a lender decides to forgive all or a portion of a borrower's debt, the forgiven amount is considered as income for the borrower and is liable to be taxed.
Here are the following ways you can qualify to short sale a property without any tax liability.
Short Sale of a Primary Residence. The Mortgage Forgiveness Debt Relief Act of 2007 (and it’s extension in the 2008 Federal Bailout) now allows you to short sale a primary residence without any tax liability. Today when a homeowner short sales a primary residence, they can file a simple form and the forgiven debt is no longer taxable. The amount of forgiven mortgage debt allowed to be excluded from income tax is limited to $2 million per year.
Short Sale of a Non-Primary Residence: If the property you are selling is not a primary residence, then you may be eligible for tax relief if you are considered insolvent. I don’t know the exact guidelines, but insolvent is usually considered when your total gross debts are more than your total gross assets. I’m sure a good tax professional can give you more information.
Click here to view the IRS’s website about the Mortgage Forgiveness Debt Relief Act and Debt Cancellation.
Click here to view the article on the IRS’s Website: Mortgage Workouts Now Tax-Free for Many Homeowners.
Thinking about a short sale? I can help you short sale your property and never pay the bank another penny. Send me an e-mail at wesell@teamsordelet.com. I will contact you for a free consultation. When we talk, I will explain how the process works in detail and answer any questions you may have. Or, if you prefer, you can call me at 302-476-2057 Discover how other sellers successfully completed a short sale and request a free consultation by clicking here.
Thinking about a loan modification? Our New Castle loan modification kit has the instructions you will need to get a loan modification approved with your bank. Click here to request a copy.
Thanks for reading this,
David is a Real Estate Consultant with The Team Sordelet Realty Group at Prudential Fox & Roach Realtors.
Phone: 302-476-2057. Email: wesell@teamsordelet.com.
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David Sordelet specializes in loan modification assistance and short sales in New Castle Delaware. New Castle Loan Modification Help, New Castle Short Sales, New Castle Short Sale Realtor Short Sale Realtor. New Castle DE Short Sales. New Castle Realtor. Copyright 2010 SFI Marketing Institute, LLC. All Rights Reserved. This is not intended as legal, technical, or tax advice. Please speak with a licensed professional before making any decision. Information is deemed reliable but not guaranteed as of the date of writing. The views expressed here are David Sordelet's personal views and do not reflect the views of Prudential Fox & Roach Realtors. This information on New Castle Short Sales: Will I Owe Income Tax After A Short Sale? is provided as a courtesy to our viewers to help them make informed decisions
