Tax Forgiveness Act; Still Expired…Not Seeing Any Renewal News; Yet…

Just a quick heads up [that honestly I should have done weeks ago], for anyone looking to short sale their home or are facing a foreclosure. For those not familiar with this act, or maybe not familiar with the need for this act, here’s how it works.

You short sale your home or get foreclosed on. The bank gets say $275,000 for your home (when you sell it on a short sale, or when they resell it as a foreclosure later), but you owed $375,000 on it, leaving a loss to the bank of $100,000.

Now, I know there are many people out there that think that $100,000 would be entirely the banks problem, and while that particular $100k is their problem, you as the seller have a not so new problem that just returned on December 31st due to this 2007 act not being renewed (yet?).

You see, that $100,000 is considered taxable income, more specifically, your taxable income. So, lets say you’re in a 33% tax bracket, you now potentially owe an additional $33,000 in federal income tax.

Ouch! Of course if you are in this position of considering a short sale, you’re going to want to pay for an hour with a tax attorney before putting your home on the market as a short sale.

Hopefully we see this extended/renewed, but so far I’m not seeing any promising news along those lines; yet.

Scott McDonald

Everything. Portland. Real Estate. Blog.

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