When facing foreclosure, one option that must be considered is short sale. Short selling your home offers many advantages to foreclosure and you can obtain representation at no cost. One advantage over foreclosure is the ability to obtain financing within two to three years. Short selling your home will also have much less impact on your credit score than foreclosure.
YOU ARE NOT ALONE.
Twenty-five percent (25%) of American families owe more on their home than the home is worth. There were 3.5 million foreclosures in 2009, or what amount to 10,000 a day. If you are facing foreclosure, you must analyze every option available to you. Time is of the essence–the closer to a foreclosure date, the less likely lenders will work with you.
ANAND LAW can assist you to avoid foreclosure and move out peacefully with 4-7 months to plan. We work with shortsale realtor specialists and our services are oftentimes free to the seller (with the firm being paid from the bank or buyer).
TAX CONSEQUENCES OF A SHORT SALE*
When debt in cancelled, income earned from such cancellation may be subject to tax. When short selling your home, you must carefully analyze the income that will be earned from the cancellation of debt to determine any potential tax consequences. This can be a difficult task as it is often ambiguous and confusing to determine even what is considered “cancellation of debt income”. Generally speaking, income earned from the cancellation of debt from a first loan on your primary residence is non-taxable (at least until January 1, 2013**).
However, if, after purchase, a refinance agreement was entered into or a Home Equity Line of Credit was taken out, and that debt is subsequently cancelled, such “income” is generally subject to tax. An exception to this income being subject to tax is found in § 108 of the Internal Revenue Code, which allows for such cancellation of debt to avoid being taxed where you are “insolvent”.
SHORT SALE OF INVESTMENT PROPERTIES
While you can short sell Investment homes and rental properties, these properties do not fall under the Mortgage Forgiveness Debt Relief Act and the debt forgiven will be subject to income taxes.
* ANAND LAW is not qualified to provide any tax advice and any information on this web site should not be construed as such. ANAND LAW advises all prospective clients to consult with a tax expert regarding any tax issues including those involved with the short sale or property.
** On January 1, 2013, Congress reached a deal and passed the Tax Relief Extension Act (“TREA”). The bill was previously passed by members of the Senate by 89 to 8 votes. The TREA extends the Mortgage Forgiveness Debt Relief Act of 2007 (Section 108 of the Internal Revenue Service). This will allow most people with underwater primary residences to avoid tax consequences on up to $2 million of debt forgiveness which results from short sale or foreclosure of the property. Please note, however, that the TREA will not become law until President Obama signs the bill.