Will I owe taxes on my short sale.
Before the Mortgage Forgiveness Debt Relief Act of 2007, Americans who did a short sale or lost their homes to foreclosure owed tax on the forgiven debt. Say you have a mortgage balance of $350,000 and the bank sells the home for $150,000 then the IRS will determine that you have $250,000 more in taxable income. A pretty scary figure for someone who was struggling to make their mortgage payments.
The good news is that the debt forgivness act of 2007 was extended through December 31st of 2014. If you had a short sale on your primary home that closed escrow before December 31st of 2015 the IRS is not going to be coming after you the difference.
Are you behind in your mortgage payments?
The most important thing you should do is to maintain open communication with your lender. While things are getting much better there have been tons of people in the same situation. Do not stick your head in the sand and think that it will just get better or that the lender will forget that you owe them money. Do not ignore their calls and letters. The initial embarrassment will pass and it may keep the the bank from filing a notice of default. This advice should always be free so beware of any entity asking for a fee.
Some possible avenues are:
• Loan Modification: A loan modification changes the original terms of the loan, such as interest rates, loan terms and monthly payments. A loan modification, may affect your credit score but not as much as missing payments or a
• Refinance: Refinancing means you have been granted a new loan with better terms
that will replace your existing mortgage. This has no negative impact on your credit score
Payment forbearance is offered to homeowners who have fallen behind in
their loan obligations due to a short-term financial emergency, such as
an illness, accident, natural disaster, short term layoff. Forbearance
temporarily suspends or reduces the monthly payments for a small period while you get back on your feet
• Repayment Plan: If you have missed out on some payments for valid reasons, the lender
may allow you a repayment plan. A repayment option gives you
a chance to pay the past due in small amounts. This may be enough to get you back on track.
• Deed-in-Lieu: A deed-in-lieu of foreclosure takes place when a borrower hands the property over to the lender in order to avoid foreclosure. Basically you are handing the house back to the bank without a foreclosure process One drawback is that a deed-in-lieu puts a permanent scar in one’s credit and it is not as easy to recover from as a short sale. Also, the lender can still require that the borrower pay the entire deficiency amount.
• Short Sale: A short sale is an agreement between the lender and the borrower to put your house up for sale for an amount that is less than the remaining balance of your mortgage. This is a far better option than a foreclosure and has less of an impact on your credit.
If you are struggling to meet your monthly payments it is time to get the help you need.
Talk to a tax consultant
Rhoads Tax Service
If you are in another state contact Rain Silverhawk to find an expert in your area.