Tuesday, April 03, 2012
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation - Short Sales
There are alot of Questions regarding Short Sales & the IRS taxes afterwards...
Regarding the IRS taxes, right now there is an Act called Mortgage forgiveness and debt relief act..
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
From this link…
Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
· Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets.
I would recommend checking with your accountant on this regarding the Insolvency category, and if it would apply. .
If not, you also may be able to take a Capital Loss that would usually cover the short sale “Income”.. See info here