(Caveat: I’m not an attorney or an accountant. I don’t even play one on tv. So, if you or your short sale sellers really want the skinny on the tax implications of a short sale, my best advice is to speak with a reputable accountant or tax attorney.)
Now that I have put all the cards on the table, note that I have no problem pointing agents and sellers in the right direction—where they can obtain accurate information.
Mortgage Forgiveness Debt Relief Act of 2007
If sellers are interested in learning more about the tax implications of a short sale, they need to read the Mortgage Forgiveness Debt Relief Act of 2007
Back in the day when real estate agents made a decent living selling real estate, anyone who had debt forgiven would receive a 1099-C. The difference between the amount owed and the debt forgiven would be considered taxable income. But, George Bush passed the Mortgage Forgiveness Debt Relief Act of 2007. After that, the impact of debt forgiveness on short sales became more favorable to many short sale sellers. The Mortgage Debt Relief Act of 2007 was extended through December 31, 2012 (you know… ten days after the world is supposed to end). So, short sale sellers who want to take advantage of the tax relief provided by this act would need to have their short sale closed by the last day of 2012.
Remember, if you are interested in learning more about this Act, you and/or your sellers should speak with a qualified accountant in order to learn more about how this curtain may impact their specific situation.
What about the 1099-C?
Many short sale sellers will receive a 1099-C for debt forgiven. For some short sale sellers, this may mean that the amount of debt forgiven is considered as taxable income. It is the responsibility of the seller and the seller’s accountant to determine how to handle the 1099-C.
The agent who contacted me wanted to also chat about a really interesting point. What is going to happen on January 1, 2013? Will the Mortgage Forgiveness Debt Relief Act of 2007 be extended? If not, how will the lack of tax relief impact a seller’s interest in participating in a short sale? Will this be better or worse for our economy? How will this impact the short sale market? Gee, let me get out my crystal ball and see what it says.
I think what the agent essentially wanted to know is this: If I focus on short sales, do I need to get a new job?
What say you?
