Great information about a tax credit, and short sales. If you are in this situation please read this.
For the past few years, homeowners were able to utilize a tax break (part of the Mortgage Forgiveness Debt Relief Act) when dealing with a short sale. Fortunately for many, this debt relief has been extended until the end of 2013.
Under the United States Federal Tax Code, any debt that is forgiven is treated as debt discharge income . As such, short sales with a deficiency balance could be counted as income on the difference between the mortgage balance and the sale price.
EX: If a person has a $200,000 mortgage balance, and short sold their home for $150,000, the deficiency balance is $50,000. Under the original Tax Code, the $50,000 would be reported as income and taxed. This can cost the homeowner 2 ways:
1: In this example, tax on $50,000 of income can rack up to thousands of dollars.
2: An extra $50,000 of income…
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