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Tax consequences of a short sale
Oct 6th 10
short sale tax issues
Tax consequences of a short sale
As strange as it may seem the IRS code requires that a borrower defaulting on a loan and having all or part of their debt relieved is subject to a capital gains tax liability on the amount forgiven by their lender.
Taxpayers who are defaulting or negotiating reduced settlements on their mortgages are precisely the folks who are not able to pay the capital gains taxes due per the tax code.
- Get Help With your Colorado Foreclosure.
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Congress did act on this issue on December 20, 2007. They enacted the Mortgage Forgiveness Relief Act of 2007.
The act currently provides for the following provisions.
Debt that is now canceled or forgiven by the lender is now excluded from the capital gains tax liability if it meets the following conditions:
- The debt is forgiven in calendar years 2007 through 2012
- The amount of forgiven debt does not exceed $2,000,000.00 for taxpayers who are filing jointly or $1,000,000.00 in the case of taxpayers who are married and file separately in calendar years 2009 to 2012.
- The qualified property must be the primary residence of the borrower.
- The debt must be forgiven as a direct result of the decline of the value of the property.
The lender is still required to issue a 1099-C for the amount of forgiven debt to the borrower. It is the borrower’s responsibility to attach and file an IRS form 982 along with their federal tax return for that year. The tax credit will not be allowed without the Form 982 provided at the time of the filing of the tax return.
The borrower should contact their accountant or tax preparer or go to WWW.IRS.Gov to learn more about this relief from the capital gains tax on the foreclosure, refinance or short sale of their principal residence.
Move up Home buyer Tax Credit Now in Effect-Parker News
Nov 9th 09
You may be eligible for the tax credit if you…
- have lived in your home for 5 of the last 8 years
- have an adjusted gross income of not more than $125,000 for single filers and not more than $225,000 married filing jointly you can receive the $6,500 tax break.
- you must be under contract before April 30th 2010 and close the deal by June 30, 2010.
- There is also an anti-flipping provision – Any homeowner who collects the credit and sells the property within three years must return the money.
Washington Report: Expansion of Tax Credit – Here’s something in the expanded program that hasn’t gotten much attention: The new $6,500 federal tax credit for so-called “move up” buyers took effect immediately upon enactment. That means that potentially hundreds of thousands of Americans who fit the key ownership and income criteria for the new credit are eligible for it … right now. What are those tests? 1) You have to have owned and used your current home as your principal residence for five consecutive years out the past eight; 2) Your adjusted household annual income cannot exceed $125,000 if you file taxes as a single, or $225,000 if you are married filing jointly. To qualify, you must sign a contract to purchase a replacement residence before next April 30, and go to closing on it by June 30, 2010. Although the $6,500 feature has been labeled the “move up” credit, there is nothing in the law forcing anybody to buy a bigger or costlier house. You can downsize or upsize and still get the credit.
Read the FULL article here…
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