Short Sale Tax Relief Set to Expire

Short Sale Tax Relief Set to Expire
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If you are a person that wants to get in on the short sale tax relief, now is the time. Short sales will start to become even more popular by the end of 2012 because the tax relief law will be set to expire.

Homeowners who sold their home in a short sale or have had some other sort of mortgage debt forgiven or canceled, can take advantage of this short sale tax relief.  The completions of short sales in order to qualify for the tax relief act is set for the deadline of Jan. 31, 2013. Since short sales can take an average of four to eight months to complete, homeowners are running out of time to take advantage of this offer.

Marge Peck, associate broker and co-owner of Discover Arizona Real Estate, a company that specializes in short sales in Mesa, Arizona says, “Everybody that is considering a short sale needs to talk to a CPA and see if now is the time for them to get off the Titanic and in a lifeboat before this law expires. I’ve just hired more staff. We’re prepared for the tsunami of people saying ‘I’ve waited long enough, nothing’s going to change.’”

Short sales are transactions where the borrower owes more than the home is currently worth, so the lender agrees to accept less than the full mortgage payoff at closing time.

If a bank forgives the amount the borrower is upside down with, such as a short sale, they would still have to pay taxes on that forgiven amount, since the Internal Revenue Service sees it as income.

Penny McLaughlin, owner of Penny’s Team based in Poulsbo and a certified distressed property expert (CDPE) says, “People who are underwater with their mortgage need to figure out if they’ll go into a short sale or let it foreclose.  It used to be ‘horrible’ to do a short sale … but it’s better on their credit. I’ve had people who’ve done a short sale and are now being able to buy, 18 to 20 months later.”

According to CoreLogic, a provider of consumer, financial and property information short sales made up 9.1% of home sales in March, that’s up from 7.39% in March 2011, 6.67% in March 2010 and 4.79% in March 2009.

Daren Blomquist, vice president of RealtyTrac estimates this pattern will continue. “I think we will continue to see them go up. It’s like the pattern you saw with the home buyer tax credit—the biggest spike is at the end of the deadline. I would expect to see a similar pattern with the pre-foreclosure sales.”

Short Sale Tax Implications

Short Sale Tax Implications expires in 2012. If you are looking to do a Short Sale you have less than 6 months left. 2012 is the last year so don’t take any chances.

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About Drew Wilson

Drew focuses on the Commercial and Mortgage/Finance categories.

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