Short sale deficiencies untaxable in 2013
The Mortgage Debt Relief act has been extended for one year as part of the last-minute "fiscal cliff" agreement. Congress guaranteed that homeowners who do short sales on their primary residence in 2013 will no be taxed on the "deficiency". This is the difference between what is owed on the mortgage and the sale price of the home.
Without this debt forgiveness, this deficiency would have been considered earned income. So if someone had purchased a home for $350,000 with a $300,000 loan, and it sold for $250,000, they not only would have had to pay taxes on the $50,000, but that also would have likely pushed them into a higher tax bracket. Making the taxation that much worse.
A December 28th 2012 Arizona Repulic Story
Incorrectly reported that state
non-recourse law prevents the IRS from taxing deficiency. Arizona non-recourse law prevents the lender from trying to recover the deficiency after approving a short sale.
If you are considering a short sale, it is important that you consult a CPA, a Real Estate Attorney and a Real Estate professional that are familiar with Short Sales.
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