There are consequences of doing a short sale whether it be within the Santa Maria real estate market or anywhere your house is located this is on the grounds that you owe more relative to your mortgage home loan than what your home happens to be worth at this time, this is when you are upside down. Do not get me wrong there are some benefits to a short sale as well, but we are only going to touch a little bit about the dark side. Reality therea are millions of homes owners facing this and many of the homes in Santa Maria are short sales at this time.
Assuming that you read my last blog then you read with respect to the benefits of carrying out a short sale supposing that you did not you might want to visit that blog seeing that there are some benefits as to why you would want to do a short sale vs. letting your home foreclose if you do not qualify for a loan modification. The majority of Santa Maria homes for sale in addition to quite a bit of likely in Calif. are either a short sale or a foreclosure and a number homeowners could be contemplating what course of action to do whether to do nothing but walk away or work in connection with doing a short sale. So if you are on the fence of just walking or doing a short sale maybe this can help.
You need to take into consideration that you owe $400,000.00 on a house that is just worth $200,000.00. What takes place towards the difference???
First we choose to talk with reference to the IRS, the Feds also then we choose to talk in regard to the effect with regard to a state level regarding in what way or manner they look at that $200,000.00 dollar variation. nonetheless what takes place provided that you do a short sale does the bank eat the difference, The response depends relative to where you live. You will have to look into the laws of your state, for instance provided that a bank agrees to do a short sale in the state of California whether it be a first or a second the bank will not be able to come after you for the deficiency amount. For instance if you had a second on your home in a foreclosure they may be able to take you to court for what you owe them.
Most reading this are probably thinking that’s cool sign me up also let’s do a short sale. The only problem is that the IRS considers any canceled debt as ordinary income, even when dealing even with credit cards in reference to working on settlements. So but now the picture is not so rosy especially with the condition that you have never made $200,000.00 in your life in addition to at this time looking at a tax bill of $200,000.00. supposing that you do a short sale you will be receiving a 1099C for 200k with the condition that you do a foreclosure you will receive a 1099A, these will need to be filed even with your tax return. So now what should you do? You should have a couple of alternatives and do please keep in mind try to go to someone that is incredibly experienced with taxes this is not something you want to just let anyone do for you.
So here are some Exceptions towards the rule on paying taxes.. Listen up 😉
1) The IRS will not collect taxes with respect to the deficiency amount assuming that the homeowner filed Bankruptcy also included the deficiency amount.
2) The homeowner filed insolvency at the time of cancellation of debt, which means that you owed more than what you have in assets you do not have to file BK this may be done at the time when filing your tax return.
3) assuming that this was a rental property in addition to you could offset debt by other business liabilities in addition to expenses basically back to being insolvent.
with the condition that you just let the home to go to foreclosure no worries this is straight from the IRS themselves
Update Dec. 11, 2008 – The Mortgage Forgiveness 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 let alone a foreclosure, qualify for this relief. bear in mind DECEMBER 31, 2012 SO with the condition that YOU ARE THINKING OF carrying out A SHORT SALE DO IT SOON!!
This provision applies towards debt forgiven within calendar years 2007 through 2012. Up to $2 million of forgiven debt is eligible for this exception ($1 million if married filing separately). http://www.irs.gov/newsroom/article/0,,id=174034,00.html
In closing the benefits always do out weigh the consequences in doing short sale vs. a foreclosure. Biggest benefit would be when do you want to become a homeowner again, and stop having to deal with what is going to happen next, both will impact your credit just one impacts it slightly less. This was just a brief summary of the tax consequences involved as well as you will need to seek the counsel of somebody that can help you with filing for your taxes. The real estate market will still have a few years of dealing with foreclosures in addition to short sales as the primary source of homes on the market.