Big Tax Consequences coming so Short Sell now!
The Mortgage Debt Foregiveness Act of 2007 is set to expire in December of 2012. This is the bill that George W. Bush signed into law that said a person or persons that shortsold or were foreclosed on a home that was their primary residence would not be taxed on the dificiency, as they were in the past. Good 'ole George W. thought he was doing a good and noble thing by signing this bill into law. And the millions of Americans that walked away from their homes or shortsold since them, do thank him (or maybe not as they probably do not know that he saved them thousands or tens of thousands of dollars). Investors currently get a 1099 for the amount of the deficiency ( say you owe $250,000 and sell the house for $100,000, you have $150,000 deficiency). Prior to George W. signing the bill, investors and non-investors alike got a 1099. Well, it looks like the 1099 will be back in 2013 for the primary homeowners that shortsell or walk away. The bad thing about this is, if you have $150,000 deficiency and are in a 25% tax bracket, for example, you will have an addition $37,500 in taxes for the year! That is huge! And, if you don't pay that, the penalties and interest tacked in by the IRS will build up fast. The good part of this is that it should help reduce the number of strategic defaults (those that walk away from their home just because it is under water and they connot justify continuing to pay the mortgage on something that is worth less than they owe). The bad part is the taxes. Needless to say, the moral of the story is if you are going to shortsell or walk away, do it before December of 2012!
Posted at 03:02PM Jan 24, 2012 by Jeff and Kelly Stafford in Real Estate | Comments[1]
Posted by Las Vegas Linda on February 09, 2012 at 12:58 AM PST #