Short Sale Sellers Need to Close in 2012 or Else
If you are one of the thousands of home owners mental of doing a Short Sale, you need to get going right now so you can close this year.
Short Sale Sellers Need to Close in 2012 or Else
Why? You may ask, because through Dec. 31, 2012, the federal government forgives any tax liability linked with forgiveness of a mortgage loan often times linked with a short sale.
If a bank writes off debt in a short sale, it's a "taxable event," and the lender tells the Internal wage service about the deal by submitting a "Form 1099-C, Cancellation of Debt" at the end of the year. Home sellers must sass the whole when they fill out their federal taxes.
The December 31, 2012 deadline can all the time be extended by the federal government. In general many homeowners believe the government will do exactly that.
However, as evidenced by the First Time Home Buyer credit expiration in 2010, you can't all the time count on the government to enlarge the safety net and give needy home owners a bailout.
The government ordinarily considers forgiven debt to be income. If a seeder has signed legal loan papers to take out a 0,000 mortgage and the lender accepts 0,000 in a short sale, for example, the seeder received the equivalent of 0,000 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 whole can be significant. On a debt of 0,000, a short-sale seeder in the 25 percent tax bracket could end up owing ,000 in wage taxes.
Therefore, since short sales can take months and some even fall through, homeowners considering doing a short sale may want to find a good realtor of attorney and start the ball rolling sooner rather than later.
Right now is the time to make the hard decision: Are you going to walk away from your underwater home? Because if you procrastinate and the clock run out you may owe large federal wage taxes in 2013.
As previously stated, the Federal Government is giving homeowners until Dec. 31, 2012, to go through a short sale or foreclosure without tax consequences - as long as the lender officially releases the debt.
However, on January 1, 2013, the rules change: The whole a lender forgives, ether in a short sale or foreclosure, on a original abode will be chargeable on federal wage taxes.
A word of caution to those home owners choosing to take the plunge... Make sure the agent or attorney representing you get a letter from the bank/lender acknowledging that the short fall whole of the mortgage is forgiven. Homeowners would be on the hook even if the house sold but the bank had not formally forgiven the loan in a letter: The banks must officially sign off in writing before December 31, 2012.
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