Underwater Home Owners in Dublin Ranch May Have More Time to Make an Important Decision.
One of the reasons Dublin Ranch homeowners are thinking seriously about short-selling their homes is because a Federal Tax benefit for underwater homes is expiring at the end of this year. The reason this is important is because, according to the IRS, if you are forgiven debt (through a short sale, or suffering a foreclosure) that’s considered income — and it’s taxable.
So, picture this: you’re a family who has fallen on hard times in a bad recession. You get behind on your payments, and after months of working with your lender to modify your loan you end up having to do a short sale. Because of what your home is worth now versus what you owe, your lender approves the short sale at a $200,000 loss to them. That $200,000 of forgiven debt — that’s what’s considered taxable. And not at a capital gains tax rate, but at an INCOME tax rate.
So the poor family in the above scenario, who can’t make ends meet and is forced to short sell their home now owes (as a guess) $100,000 in income taxes on $200,000 they didn’t at all receive as “income.” The Mortgage Forgiveness Debt Relief Act changed that, temporarily. It’s a measure that was passed in 2007, but was written to expire at the end of 2012. Most of us probably thought we’d be out of the “mortgage mess” by then, but it looks that Congress is looking to extend it for one more year and see how it goes.
The Mortgage Forgiveness Debt Relief Act does not exclude all tax liabilities on short sales, and Lifestyle Real Estate Services is not licensed to give tax advise. We can, however, point you in the direction of people we trust who are. We can also help you learn more on how to Break Fee from a mortgage you can’t afford.