Start Your Arizona Short Sales Now! Or it may cost you tens of thousands of dollars in taxes if you wait to deal with your home. The Mortgage Forgiveness Debt Relief Act expires at the end of 2012, which generally allows you to exclude income from the discharge of debt on your principal residence (always consult legal or tax advice for your specific situation). This includes debt reductions through loan modification, principal reduction, foreclosure or short sale.
So if those bozo's in Washington do not extend this deadline, and they may not because an extension is estimated to cost over $2 billion, you will have to pay income taxes on the amount of debt forgiven on your principal residence. For example, if you owe your mortgage companies $300,000 and you short sale your home or let it foreclose and the mortgage companies receive $175,000, the difference of $125,000 is the amount of debt forgiven. After the Mortgage Forgiveness Debt Relief Act expires that $125,000 will be taxed as income to you and will probably jump you up a couple tax brackets as well. So if you wind up in a 30% tax bracket you will owe $37,500 in taxes just on the $125,000 in debt forgiven! I am just picking numbers as an example so if you want tax advice for your situation please consult a tax professional.
Since the short sale process in Arizona will usually take 3-6 months you need to start as soon as possible in order to close the sale by 12/31/2012. Don't take the chance of getting stuck with an enormous tax bill when you can take care of it now and not have to pay any income taxes.
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