Short Sale Debt-Relief Tax Solution? It Looks Like It

On December 20, 2007, the President and Congress put into law "HR 3648 – Mortgage Forgiveness Debt Relief Act of 2007." This could be great news for sellers who short sale their personal residence.

Let me say first that since this law is so new, I cannot say for sure exactly how this will work. I always encourage people to check with their financial advisors since everyone's personal situations are different.

While the law is quite involved (and I suggest you research more in-depth), one of the great things I see is the part of the law where sellers who sell their personal residence as a short sale may no longer owe income tax on the amount of "debt relief" (the debt forgiven by a lender) they received on their mortgage - as long as the mortgage was used to "acquire, construct or substantially-improve" the property. I don't believe this would benefit sellers on mortgages like equity lines of credit or other non-home-benefiting mortgages.

For more information, Google "HR 3648" and research it for yourself.

Here's a PDF link to review directly from Congress: Click Here.

One note, however, is that I do see some differing explanations of this law on different websites. So, as always, I strongly encourage sellers considering a short sale or foreclosure to consult with their attorney, tax advisors, CPA or other appropriate professional. And, keep in mind, this only affects federal tax, not state tax. Again, check with your CPA.

For more short sale info, check out these articles:

• What is a Short Sale?
• Can You Really Sell for LESS Than You Owe?

Comments

[Uncle Jack (Jack LeVine)]

now if we can just get the banks to go along on a TIMELY basis....

[dr boyce]

Short sales are a continuing nightmare for most Realtors, home buyers and home sellers.

There will never be an easy solution for this mess, but having to wait 3-8 weeks for a purchase offer to be "approved" is NOT conducive to the real estate business...everyone losses.

[debt relief]

Although applying for loans is very hard, many companies are providing good services to the people just to pay back the money. The loan can only be a good way for seeking opportunities and fulfilling the desires but it will become a frustration if the borrower will not pay the money in time.

[arizona bankruptcy]

With the short sale happening so frequently now I wonder the effect this ruling has had.

[mesa bankruptcy attorney]

At this moment the short sale market is perhaps where most homes are selling. There is a whole new group of agents specializing in short sales now.